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Aerovironment Inc (AVAV) SEC Filing 10-K Annual report for the fiscal year ending Tuesday, April 30, 2019

Aerovironment Inc

CIK: 1368622 Ticker: AVAV

Exhibit 99.1

 

Picture 2

 

 

AeroVironment, Inc. Announces Fiscal 2019 Full Year and Fourth Quarter Results

 

SIMI VALLEY, Calif., June 25, 2019

— AeroVironment, Inc. (NASDAQ: AVAV) today reported financial results for its full year and fourth quarter ended April 30, 2019.

 

·

Revenue of $314.3 million, up 17 percent year-over-year

 

·

Gross margin of 41 percent, up 1 percentage point year-over-year

 

·

Full year earnings per diluted share from continuing operations of $1.74, including a one-time gain of $0.26 from a litigation settlement,  up $0.83 from one year ago

 

“Our team delivered outstanding results in fiscal 2019, increasing full year revenue by 17 percent and earnings per share by 91 percent, including a one-time litigation settlement gain,” said Wahid Nawabi, AeroVironment president and chief executive officer. “By diversifying our investments, including our partial ownership of the HAPSMobile Inc. joint venture, we strengthened our position as an industry leader, accelerated our growth strategy and expanded our footprint. We continue to transform AeroVironment to compete effectively into the future and are poised to build on our momentum in fiscal year 2020 and beyond.”

 

“We are also delivering benefits for our other important stakeholders, which will ultimately translate into long-term value creation for our shareholders. We are protecting more United States and allied forces with our unmanned aircraft and tactical missile systems, empowering more farmers and researchers with data tools to grow more and earn more, and rolling out the next generation HAWK30 solar HAPS system to help connect billions of people to the global information network,” Nawabi added.

 

FISCAL 2019 FULL YEAR RESULTS

 

Revenue for fiscal 2019 was $314.3 million, an increase of 17%  from fiscal 2018 revenue of $268.4 million. The increase in revenue was due to an increase in service revenue of $25.5 million and an increase in product sales of $20.4 million.

 

Gross margin for fiscal 2019 was $128.4 million, an increase of 19%  from fiscal 2018 gross margin of $107.7 million. The increase in gross margin was primarily due to an increase in product margin of $16.3 million and an increase in service margin of $4.4 million. As a percentage of revenue, gross margin increased to 41% from 40%. The increase in gross margin percentage was primarily due to the increase in sales volume, partially offset by an increase in inventory reserve charges and an increase in the proportion of service revenue to total revenue.

 

Income from continuing operations for fiscal 2019 was $33.8 million, an increase of 11% from fiscal 2018 income from continuing operations of $30.4 million. The increase in income from continuing operations was primarily a result of an increase in gross margin of $20.7 million, partially offset by an increase in selling, general and administrative (“SG&A”) expense of $9.5 million and an increase of research and development (“R&D”) expense of $7.8 million. The increase in SG&A expense included impairment charges of $4.4 million recorded during the three months ended April 30, 2019 related to the long-lived assets of our commercial UAS Quantix solution.

 

1

Other income, net for fiscal 2019 was $16.7 million compared to other income, net of $2.2 million for fiscal 2018. The increase in other income, net was primarily due to a one-time gain from a litigation settlement, an increase in interest income and income from transition services performed on behalf of the buyer of the discontinued Efficient Energy Systems (“EES”) business.

 

Provision for income taxes for fiscal 2019 was $4.6 million compared to $9.8 million for fiscal 2018. The decrease in provision for income taxes was primarily due to a one-time expense of $3.3 million recorded during fiscal year 2018 as a result of the Tax Cut and Jobs Act of 2017 and a reduction of the federal statutory tax rate from 30.4% to 21%,  partially offset by an increase in income before income taxes.

 

Equity method investment loss, net of tax for fiscal 2019 was $3.9 million compared to $1.3 million for fiscal 2018. The equity method loss is associated with our investment in the HAPSMobile Inc. joint venture formed in December 2017.

 

Gain on sale of a business, net of tax for fiscal 2019 was $8.5 million and resulted from the sale of our discontinued EES business.

 

Loss from discontinued operations, net of tax for fiscal 2019 was $3.0 million compared to loss from discontinued operations, net of tax for fiscal 2018 of $3.9 million.

 

Net income attributable to AeroVironment for fiscal 2019 was  $47.4 million, an increase from fiscal 2018 net income attributable to AeroVironment of $17.9 million.

 

Earnings per diluted share from continuing operations attributable to AeroVironment for fiscal 2019 was  $1.74 compared to earnings per diluted share from continuing operations attributable to AeroVironment for fiscal 2018 of $0.91.

 

FISCAL 2019 FOURTH QUARTER RESULTS

 

Revenue for the fourth quarter of fiscal 2019 was $87.9 million, a decrease of 23% from fourth quarter fiscal 2018 revenue of $113.6 million. The decrease in revenue was due to a decrease in product sales of $25.4 million and a decrease in service revenue of $0.3 million.

 

Gross margin for the fourth quarter of fiscal 2019 was $37.0 million, a decrease of 27% from fourth quarter fiscal 2018 gross margin of $50.6 million. The decrease in gross margin was primarily due to a decrease in product margin of $12.3 million and a decrease in service margin of $1.2 million. As a percentage of revenue, gross margin decreased to 42% from 45%. The decrease in gross margin percentage was primarily due to the decrease in sales volume and an increase in the proportion of service revenue to total revenue.

 

Income from continuing operations for the fourth quarter of fiscal 2019 was $5.1 million, a decrease of 82% from fourth quarter fiscal 2018 income from continuing operations of $27.9 million. The decrease in income from continuing operations was primarily a result of a decrease in gross margin of $13.6 million, an increase in SG&A expense of $5.0 million and an increase in R&D expense of $4.2 million. The increase in SG&A expense included impairment charges of $4.4 million recorded during the three months ended April 30, 2019 related to the long-lived assets of our commercial UAS Quantix solution.

 

Other income, net for the fourth quarter of fiscal 2019 was $2.8 million compared to other income, net of $0.9 million for the fourth quarter of fiscal 2018. The increase in other income, net was primarily due to income from transition services performed on behalf of the buyer of the discontinued EES business and an increase in interest income.

 

(Benefit) Provision for income taxes for the fourth quarter of fiscal 2019 was a  $0.1 million benefit compared to $8.8 million provision for the fourth quarter of fiscal 2018. The decrease in provision for income taxes was primarily due to a decrease in income before income taxes and a reduction of the federal statutory tax rate from 30.4% to 21% as a result of the Tax Cut and Jobs Act of 2017.

 

2

Equity method investment loss, net of tax for the fourth quarter of fiscal 2019 was $1.9 million compared to $0.9 million for the fourth quarter of fiscal 2018. The equity method loss is associated with our investment in the HAPSMobile Inc. joint venture formed in December 2017.

 

Loss from discontinued operations, net of tax for the fourth quarter of fiscal 2019 was $0.5 million compared to loss from discontinued operations, net of tax for the fourth quarter of fiscal 2018 of $2.2 million.

 

Net income attributable to AeroVironment for the fourth quarter of fiscal 2019 was $5.7 million, a decrease from fourth quarter fiscal 2018 net income attributable to AeroVironment of $16.8 million.

 

Earnings per diluted share from continuing operations attributable to AeroVironment for the fourth quarter of fiscal 2019 was $0.26 compared to earnings per diluted share from continuing operations attributable to AeroVironment for the fourth quarter fiscal 2018 of $0.79.

 

BACKLOG

 

As of April 30, 2019,  funded backlog (remaining performance obligations under firm orders for which funding is currently appropriated to us under a customer contract) was $164.3 million compared to $164.4 million as of April 30, 2018.

 

FISCAL 2020 — OUTLOOK FOR THE FULL YEAR

 

For fiscal 2020, the Company expects to generate between $350 million and $370 million in revenue and between $1.35 and $1.55 in earnings per diluted share. This financial guidance assumes approximately 5% ownership of the HAPSMobile joint venture and includes the expected losses of Pulse Aerospace, which the Company acquired on June 10, 2019.  The Company expects non-GAAP earnings per diluted share, which excludes acquisition related expenses and amortization of acquired intangible assets to be between $1.47 and $1.67.

 

The foregoing estimates are forward looking and reflect management's view of current and future market conditions, including certain assumptions with respect to our ability to obtain and retain government contracts, changes in the timing and/or amount of government spending, changes in the demand for our products and services, activities of competitors, changes in the regulatory environment, and general economic and business conditions in the United States and elsewhere in the world. Investors are reminded that actual results may differ materially from these estimates.

 

CONFERENCE CALL

 

In conjunction with this release, AeroVironment, Inc. will host a conference call today, Tuesday,  June 25, 2019, at 1:30 pm Pacific Time that will be broadcast live over the Internet. Wahid Nawabi, president and chief executive officer, Teresa P. Covington, chief financial officer and Steven A. Gitlin, vice president of investor relations, will host the call.

 

4:30 PM ET

3:30 PM CT

2:30 PM MT

1:30 PM PT

 

Investors may dial into the call at (800) 708-4539 (U.S.) and enter the passcode 48685250 or (847)  619-6396 (international) five to ten minutes prior to the start time to allow for registration.

 

Investors with Internet access may listen to the live audio webcast via the Investor Relations page of the AeroVironment, Inc. website, http://investor.avinc.com. Please allow 15 minutes prior to the call to download and install any necessary audio software.

 

3

Audio Replay Options

 

An audio replay of the event will be archived on the Investor Relations page of the company's website, at http://investor.avinc.com. The audio replay will also be available via telephone from Tuesday,  June 25, 2019, at approximately 4:00 p.m. Pacific Time through July 2, 2019, at 11:59 p.m. Pacific Time.  Dial (888) 843-7419 and enter the passcode 48685250#. International callers should dial (630) 652-3042 and enter the same passcode number to access the audio replay. 

 

ABOUT AEROVIRONMENT, INC.

 

AeroVironment (NASDAQ: AVAV) provides customers with more actionable intelligence so they can proceed with certainty. Based in California, AeroVironment is a global leader in unmanned aircraft systems and tactical missile systems, and serves defense, government and commercial customers. For more information visit www.avinc.com.

 

FORWARD-LOOKING STATEMENTS

 

This press release contains “forward-looking statements” as that term is defined in 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.

 

Factors that could cause actual results to differ materially from the forward-looking statements include, but are not limited to, reliance on sales to the U.S. government; availability of U.S. government funding for defense procurement and R&D programs; changes in the timing and/or amount of government spending; our ability to perform under existing contracts and obtain new contracts;  risks related to our international business, including compliance with export control laws; potential need for changes in our long-term strategy in response to future developments; the extensive regulatory requirements governing our contracts with the U.S. government and international customers; the consequences to our financial position, business and reputation that could result from failing to comply with such regulatory requirements; unexpected technical and marketing difficulties inherent in major research and product development efforts; the impact of potential security and cyber threats; changes in the supply and/or demand and/or prices for our products and services; the activities of competitors and increased competition; failure of the markets in which we operate to grow; uncertainty in the customer adoption rate of commercial use unmanned aircraft systems; failure to remain a market innovator and create new market opportunities; changes in significant operating expenses, including components and raw materials; failure to develop new products; the extensive regulatory requirements governing our contracts with the U.S. government; risk of litigation, including but not limited to pending litigation arising from the sale of our EES business; the impact of our recent acquisition of Pulse Aerospace, LLC and our ability to successfully integrate it into our operations;  product liability, infringement and other claims; changes in the regulatory environment; and general economic and business conditions in the United States and elsewhere in the world. For a further list and description of such risks and uncertainties, see the reports we file with the Securities and Exchange Commission. We do not intend, and undertake no obligation, to update any forward-looking statements, whether as a result of new information, future events or otherwise.

 

NON-GAAP MEASURES

 

In addition to the financial measures prepared in accordance with generally accepted accounting principles (GAAP), this earnings release also contains a non-GAAP financial measure.  See in the financial tables below the calculation of this measure, the reasons why we believe this measure provides useful information to investors, and a reconciliation of this measure to the most directly comparable GAAP.

 

- Financial Tables Follow –

4

AeroVironment, Inc.

Consolidated Statements of Operations (Unaudited)

(In thousands except share and per share data)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Three Months Ended

 

Year Ended

 

 

 

April 30,

 

April 30,

 

April 30,

 

April 30,

 

 

    

2019

    

2018

 

2019

    

2018

 

 

 

(Unaudited)

 

 

 

Revenue:

 

 

 

 

 

 

 

 

 

 

 

 

 

Product sales

 

$

59,696

 

$

85,065

 

$

212,089

 

$

191,712

 

Contract services (inclusive of related party revenue of $17,426 and $14,497 for the three months ended April 30, 2019 and 2018, respectively; and $55,407 and $29,594 for the years ended April 30, 2019 and April 30, 2018, respectively)

 

 

28,234

 

 

28,564

 

 

102,185

 

 

76,712

 

 

 

 

87,930

 

 

113,629

 

 

314,274

 

 

268,424

 

Cost of sales:

 

 

 

 

 

 

 

 

 

 

 

 

 

Product sales

 

 

30,331

 

 

43,355

 

 

113,489

 

 

109,393

 

Contract services

 

 

20,576

 

 

19,680

 

 

72,382

 

 

51,346

 

 

 

 

50,907

 

 

63,035

 

 

185,871

 

 

160,739

 

Gross margin:

 

 

 

 

 

 

 

 

 

 

 

 

 

Product sales

 

 

29,365

 

 

41,710

 

 

98,600

 

 

82,319

 

Contract services

 

 

7,658

 

 

8,884

 

 

29,803

 

 

25,366

 

 

 

 

37,023

 

 

50,594

 

 

128,403

 

 

107,685

 

Selling, general and administrative

 

 

20,277

 

 

15,287

 

 

60,343

 

 

50,826

 

Research and development

 

 

11,603

 

 

7,440

 

 

34,234

 

 

26,433

 

Income from continuing operations

 

 

5,143

 

 

27,867

 

 

33,826

 

 

30,426

 

Other income:

 

 

 

 

 

 

 

 

 

 

 

 

 

Interest income, net

 

 

1,426

 

 

751

 

 

4,672

 

 

2,240

 

Other income, net

 

 

1,339

 

 

110

 

 

11,980

 

 

(49)

 

Income from continuing operations before income taxes

 

 

7,908

 

 

28,728

 

 

50,478

 

 

32,617

 

(Benefit) Provision for income taxes

 

 

(83)

 

 

8,829

 

 

4,641

 

 

9,800

 

Equity method investment loss, net of tax

 

 

(1,873)

 

 

(865)

 

 

(3,944)

 

 

(1,283)

 

Net income from continuing operations

 

 

6,118

 

 

19,034

 

 

41,893

 

 

21,534

 

Discontinued operations:

 

 

 

 

 

 

 

 

 

 

 

 

 

Gain on sale of business, net of tax (benefit) expense of ($20) and $2,443 for the three months and year ended April 30, 2019, respectively

 

 

38

 

 

 —

 

 

8,490

 

 

 —

 

Loss from discontinued operations, net of tax

 

 

(453)

 

 

(2,237)

 

 

(2,964)

 

 

(3,887)

 

Net (loss) income from discontinued operations

 

 

(415)

 

 

(2,237)

 

 

5,526

 

 

(3,887)

 

Net income

 

 

5,703

 

 

16,797

 

 

47,419

 

 

17,647

 

Net (income) loss attributable to noncontrolling interest

 

 

(21)

 

 

(22)

 

 

19

 

 

216

 

Net income attributable to AeroVironment

 

$

5,682

 

$

16,775

 

$

47,438

 

$

17,863

 

Net income (loss) per share attributable to AeroVironment—Basic

 

 

 

 

 

 

 

 

 

 

 

 

 

Continuing operations

 

$

0.26

 

$

0.80

 

$

1.77

 

$

0.93

 

Discontinued operations

 

 

(0.02)

 

 

(0.09)

 

 

0.23

 

 

(0.17)

 

Net income per share attributable to AeroVironment—Basic

 

$

0.24

 

$

0.71

 

$

2.00

 

$

0.76

 

Net income (loss) per share attributable to AeroVironment—Diluted

 

 

 

 

 

 

 

 

 

 

 

 

 

Continuing operations

 

$

0.26

 

$

0.79

 

$

1.74

 

$

0.91

 

Discontinued operations

 

 

(0.02)

 

 

(0.09)

 

 

0.23

 

 

(0.16)

 

Net income per share attributable to AeroVironment—Diluted

 

$

0.24

 

$

0.70

 

$

1.97

 

$

0.75

 

Weighted-average shares outstanding:

 

 

 

 

 

 

 

 

 

 

 

 

 

Basic

 

 

23,718,030

 

 

23,551,871

 

 

23,663,410

 

 

23,471,241

 

Diluted

 

 

24,094,717

 

 

23,916,898

 

 

24,071,713

 

 

23,813,772

 

 

 

5

AeroVironment, Inc.

Consolidated Balance Sheets

(In thousands except share data)

 

 

 

 

 

 

 

 

 

 

 

April 30,

 

 

 

2019

 

2018

 

Assets

 

 

 

 

 

 

 

Current assets:

 

 

 

 

 

 

 

Cash and cash equivalents

 

$

172,708

 

$

143,517

 

Short-term investments

 

 

150,487

 

 

113,649

 

Accounts receivable, net of allowance for doubtful accounts of $1,041 at April 30, 2019 and $1,080 at April 30, 2018

 

 

31,051

 

 

56,813

 

Unbilled receivables and retentions (inclusive of related party unbilled receivables of $9,028 at April 30, 2019 and $3,145 at April 30, 2018)

 

 

53,047

 

 

16,872

 

Inventories

 

 

54,056

 

 

37,425

 

Prepaid expenses and other current assets

 

 

7,418

 

 

5,103

 

Income taxes receivable

 

 

821

 

 

 —

 

Current assets of discontinued operations

 

 

 —

 

 

25,668

 

Total current assets

 

 

469,588

 

 

399,047

 

Long-term investments

 

 

9,386

 

 

40,656

 

Property and equipment, net

 

 

16,905

 

 

19,219

 

Deferred income taxes

 

 

6,685

 

 

11,494

 

Other assets

 

 

6,280

 

 

3,002

 

Total assets

 

$

508,844

 

$

473,418

 

Liabilities and stockholders’ equity

 

 

 

 

 

 

 

Current liabilities:

 

 

 

 

 

 

 

Accounts payable

 

$

15,972

 

$

21,340

 

Wages and related accruals

 

 

18,507

 

 

16,851

 

Income taxes payable

 

 

 —

 

 

4,085

 

Customer advances

 

 

2,962

 

 

3,564

 

Other current liabilities

 

 

7,425

 

 

6,954

 

Current liabilities of discontinued operations

 

 

 —

 

 

9,294

 

Total current liabilities

 

 

44,866

 

 

62,088

 

Deferred rent

 

 

1,173

 

 

1,536

 

Other non-current liabilities

 

 

150

 

 

622

 

Deferred tax liability

 

 

29

 

 

67

 

Liability for uncertain tax positions

 

 

51

 

 

49

 

Commitments and contingencies

 

 

 

 

 

 

 

Stockholders’ equity:

 

 

 

 

 

 

 

Preferred stock, $0.0001 par value:

 

 

 

 

 

 

 

Authorized shares—10,000,000; none issued or outstanding at April 30, 2019 and April 30, 2018

 

 

 —

 

 

 —

 

Common stock, $0.0001 par value:

 

 

 

 

 

 

 

Authorized shares—100,000,000

 

 

 

 

 

 

 

Issued and outstanding shares—23,946,293 shares at April 30, 2019 and 23,908,736 shares at April 30, 2018

 

 

 2

 

 

 2

 

Additional paid-in capital

 

 

176,216

 

 

170,139

 

Accumulated other comprehensive loss

 

 

 2

 

 

(21)

 

Retained earnings

 

 

286,351

 

 

238,913

 

Total AeroVironment stockholders’ equity

 

 

462,571

 

 

409,033

 

Noncontrolling interest

 

 

 4

 

 

23

 

Total equity

 

 

462,575

 

 

409,056

 

Total liabilities and stockholders’ equity

 

$

508,844

 

$

473,418

 

 

 

 

 

6

AeroVironment, Inc.

Consolidated Statements of Cash Flows

(In thousands)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Year Ended April 30,

 

 

 

2019

    

2018

    

2017

 

 

 

 

 

 

 

 

 

 

Operating activities

 

 

 

 

 

 

 

 

Net income

 

$

47,419

 

$

17,647

 

$

13,078

 

Gain on sale of business, net of tax

 

 

(8,490)

 

 

 —

 

 

 —

 

Loss from discontinued operations, net of tax

 

 

2,964

 

 

3,887

 

 

4,601

 

Net income from continuing operations

 

 

41,893

 

 

21,534

 

 

17,679

 

Adjustments to reconcile net income to cash provided by (used in) operating activities:

 

 

 

 

 

 

 

 

 

 

Depreciation and amortization

 

 

7,669

 

 

5,982

 

 

5,054

 

Loss from equity method investment

 

 

3,944

 

 

1,283

 

 

119

 

Impairment of long-lived assets

 

 

4,398

 

 

255

 

 

46

 

Provision for doubtful accounts

 

 

(39)

 

 

977

 

 

48

 

Impairment of intangible assets and goodwill

 

 

 —

 

 

1,021

 

 

 —

 

Gains on foreign currency transactions

 

 

38

 

 

(87)

 

 

284

 

Deferred income taxes

 

 

4,792

 

 

2,853

 

 

309

 

Gain on business acquisition

 

 

 —

 

 

 —

 

 

(584)

 

Stock-based compensation

 

 

6,985

 

 

4,956

 

 

3,392

 

Loss on disposition of property and equipment

 

 

76

 

 

20

 

 

44

 

Amortization of held-to-maturity investments

 

 

(1,506)

 

 

1,424

 

 

2,382

 

Changes in operating assets and liabilities:

 

 

 

 

 

 

 

 

 

 

Accounts receivable

 

 

25,821

 

 

11,070

 

 

(19,720)

 

Unbilled receivables and retentions

 

 

(36,175)

 

 

2,253

 

 

615

 

Inventories

 

 

(16,631)

 

 

1,192

 

 

(16,816)

 

Income tax receivable

 

 

(821)

 

 

 —

 

 

 —

 

Prepaid expenses and other assets

 

 

(2,401)

 

 

139

 

 

(1,484)

 

Accounts payable

 

 

(7,054)

 

 

5,736

 

 

545

 

Other liabilities

 

 

(4,043)

 

 

9,224

 

 

(166)

 

Net cash provided by (used in) operating activities of continuing operations

 

 

26,946

 

 

69,832

 

 

(8,253)

 

Investing activities

 

 

 

 

 

 

 

 

 

 

Acquisition of property and equipment

 

 

(8,896)

 

 

(9,563)

 

 

(9,017)

 

Equity method investments

 

 

(7,598)

 

 

(3,267)

 

 

 —

 

Business acquisitions, net of cash acquired

 

 

 —

 

 

 —

 

 

(430)

 

Proceeds from sale of business

 

 

31,994

 

 

 —

 

 

 —

 

Redemptions of held-to-maturity investments

 

 

260,918

 

 

227,663

 

 

121,522

 

Purchases of held-to-maturity investments

 

 

(267,122)

 

 

(221,680)

 

 

(148,991)

 

Redemptions of available-for-sale investments

 

 

2,250

 

 

450

 

 

400

 

Net cash provided by (used in) investing activities from continuing operations

 

 

11,546

 

 

(6,397)

 

 

(36,516)

 

Financing activities

 

 

 

 

 

 

 

 

 

 

Principal payments of capital lease obligations

 

 

(161)

 

 

(288)

 

 

(390)

 

Tax withholding payment related to net settlement of equity awards

 

 

(1,094)

 

 

(397)

 

 

(5)

 

Exercise of stock options

 

 

71

 

 

2,705

 

 

3,865

 

Net cash (used in) provided by financing activities from continuing operations

 

 

(1,184)

 

 

2,020

 

 

3,470

 

Discontinued operations

 

 

 

 

 

 

 

 

 

 

Operating activities of discontinued operations

 

 

(7,686)

 

 

(623)

 

 

(2,246)

 

Investing activities of discontinued operations

 

 

(431)

 

 

(1,219)

 

 

(838)

 

Financing activities of discontinued operations

 

 

 —

 

 

 —

 

 

 —

 

Net cash used in discontinued operations

 

 

(8,117)

 

 

(1,842)

 

 

(3,084)

 

Net increase (decrease) in cash and cash equivalents

 

 

29,191

 

 

63,613

 

 

(44,383)

 

Cash and cash equivalents at beginning of period

 

 

143,517

 

 

79,904

 

 

124,287

 

Cash and cash equivalents at end of period

 

$

172,708

 

$

143,517

 

$

79,904

 

Supplemental disclosures of cash flow information

 

 

 

 

 

 

 

 

 

 

Cash paid, net during the period for:

 

 

 

 

 

 

 

 

 

 

Income taxes

 

$

6,780

 

$

1,813

 

$

1,804

 

Non-cash activities

 

 

 

 

 

 

 

 

 

 

Unrealized gain on investments, net of deferred tax expense of $51, $25 and $43, respectively

 

$

57

 

$

70

 

$

74

 

Reclassification from share-based liability compensation to equity

 

$

 —

 

$

384

 

$

307

 

Change in foreign currency translation adjustments

 

$

(34)

 

$

36

 

$

 —

 

Acquisitions of property and equipment included in accounts payable

 

$

810

 

$

379

 

$

724

 

 

 

 

 

 

7

AeroVironment, Inc.

Reconciliation of Forecasted Diluted Earnings per Share (Unaudited)

 

 

 

 

 

 

 

 

 

 

Fiscal year ending

 

    

April 30, 2020

Forecasted earnings per diluted share (GAAP)

 

$

1.35 - 1.55

Acquisition related expenses

 

 

0.03

Amortization of acquired intangible assets

 

 

0.08 - 0.10

Forecasted earnings per diluted share as adjusted (Non-GAAP)

 

$

1.47 - 1.67

 

 

 

 

Statement Regarding Non-GAAP Measures

 

The non-GAAP measure set forth above should be considered in addition to, and not as a replacement for or superior to, the comparable GAAP measure, and may not be comparable to similarly titled measures reported by other companies.  Management believes that this measure provides useful information to investors by offering additional ways of viewing our results that, when reconciled to the corresponding GAAP measure, help our investors to understand the long-term profitability trends of our business and compare our profitability to prior and future periods and to our peers.  In addition, Management uses this non-GAAP measure to measure our operating and financial performance.

 

We exclude the acquisition-related expenses and amortization of acquisition-related intangible assets because we believe this facilitates more consistent comparisons of operating results over time between our newly acquired and existing businesses, and with our peer companies. We believe, however, that it is important for investors to understand that such intangible assets contribute to revenue generation and that intangible asset amortization will recur in future periods until such intangible assets have been fully amortized.

8

##

 

For additional media and information, please follow us at:

 

Facebook: http://www.facebook.com/aerovironmentinc

Twitter: http://www.twitter.com/aerovironment

LinkedIn: https://www.linkedin.com/company/aerovironment

YouTube: http://www.youtube.com/user/AeroVironmentInc

Instagram: https://www.instagram.com/aerovironmentinc/

 

Contact:

AeroVironment, Inc.

Steven Gitlin

+1 (805)  520-8350

ir@avinc.com

9


The following information was filed by Aerovironment Inc (AVAV) on Tuesday, June 25, 2019 as an 8K 2.02 statement, which is an earnings press release pertaining to results of operations and financial condition. It may be helpful to assess the quality of management by comparing the information in the press release to the information in the accompanying 10-K Annual Report statement of earnings and operation as management may choose to highlight particular information in the press release.

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

FORM 10-K

 

Annual Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934

For the fiscal year ended April 30, 2019

Transition Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934

For the transition period from              to            

 

 

Commission file number 001‑33261

 

AEROVIRONMENT, INC.

(Exact name of registrant as specified in its charter)

 

 

 

Delaware

95‑2705790

(State or other jurisdiction of incorporation or organization)

(I.R.S. Employer Identification No.)

900 Innovators Way

 

Simi Valley, CA

93065

(Address of Principal Executive Offices)

(Zip Code)

Registrant’s telephone number, including area code: (805) 520‑8350

 

 

Securities registered pursuant to Section 12(b) of the Act:

 

Title of Class

 

Trading Symbol(s)

Name of each exchange on which registered

Common Stock, par value $0.0001 per share

 

AVAV

The NASDAQ Stock Market LLC

 

Securities registered pursuant to Section 12(g) of the Act:

 

None

 

Indicate by check mark if the registrant is a well‑known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes ☐    No ☒

 

Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or 15(d) of the Act. Yes ☐    No ☒

 

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☒  No ☐

 

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S‑T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ☒  No ☐

 

Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S‑K is not contained herein, and will not be contained, to the best of registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10‑K or any amendment to this Form 10‑K. ☒

 

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

 

Large accelerated filer ☒                  Accelerated filer ☐Smaller reporting company ☐

 

Non-accelerated filer   ☐         Emerging growth company ☐

                                                              

                                                                                                  

 

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐

 

 

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b‑2 of the Act). Yes ☐    No ☒

 

The aggregate market value of the voting stock held by non‑affiliates of the registrant, based on the closing price on the NASDAQ Global Select Market on October 28, 2018 was approximately $1,893.7 million.

 

As of June 19, 2019, the issuer had 23,942,558 shares of common stock, par value $0.0001 per share, issued and outstanding.

 

DOCUMENTS INCORPORATED BY REFERENCE

 

Portions of the registrant’s definitive proxy statement to be filed with the Securities and Exchange Commission pursuant to Regulation 14A not later than 120 days after the conclusion of the registrant’s fiscal year ended April 30, 2019, are incorporated by reference into Part III of this Form 10‑K.

 

 

 

AEROVIRONMENT, INC.

INDEX TO FORM 10‑K

 

 

    

 

    

Page

 

PART I 

 

 

 

 

 

Item 1. 

 

Business

 

3

 

Item 1A. 

 

Risk Factors

 

18

 

Item 1B. 

 

Unresolved Staff Comments

 

40

 

Item 2. 

 

Properties

 

41

 

Item 3. 

 

Legal Proceedings

 

41

 

Item 4. 

 

Mine Safety Disclosure

 

41

 

PART II 

 

 

 

 

 

Item 5. 

 

Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities

 

42

 

Item 6. 

 

Selected Consolidated Financial Data

 

43

 

Item 7. 

 

Management’s Discussion and Analysis of Financial Condition and Results of Operations

 

44

 

Item 7A. 

 

Quantitative and Qualitative Disclosures About Market Risk

 

57

 

Item 8. 

 

Financial Statements and Supplementary Data

 

58

 

Item 9. 

 

Changes in and Disagreements with Accountants on Accounting and Financial Disclosure

 

105

 

Item 9A. 

 

Controls and Procedures

 

105

 

Item 9B. 

 

Other Information

 

106

 

PART III 

 

 

 

 

 

Item 10. 

 

Directors, Executive Officers and Corporate Governance

 

109

 

Item 11. 

 

Executive Compensation

 

109

 

Item 12. 

 

Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters

 

109

 

Item 13. 

 

Certain Relationships and Related Transactions, and Director Independence

 

109

 

Item 14. 

 

Principal Accounting Fees and Services

 

109

 

PART IV 

 

 

 

 

 

Item 15. 

 

Exhibits, Financial Statement Schedules

 

110

 

 

 

1

PART I

 

Forward‑Looking Statements

 

This Annual Report on Form 10‑K, or Annual Report, contains forward‑looking statements, which reflect our current views about future events and financial results. We have made these statements in reliance on the safe harbor created by the Private Securities Litigation Reform Act of 1995 (set forth in Section 27A of the Securities Act of 1933, as amended, or the Securities Act, and Section 21E of the Securities Exchange Act of 1934, as amended, or the Exchange Act). Forward‑looking statements include our views on future financial results, financing sources, product development, capital requirements, market growth and the like, and are generally identified by terms such as “may,” “will,” “should,” “could,” “targets,” “projects,” “predicts,” “contemplates,” “anticipates,” “believes,” “estimates,” “expects,” “intends,” “plans” and similar words. Forward‑looking statements are merely predictions and therefore inherently subject to uncertainties and other factors which could cause the actual results to differ materially from the forward‑looking statement. These uncertainties and other factors include, among other things:

 

·

unexpected technical and marketing difficulties inherent in major research and product development efforts;

 

·

availability of U.S. government funding for defense procurement and research and development programs;

 

·

the extensive regulatory requirements governing our contracts with the U.S. government and the results of any audit or investigation of our compliance therewith;

 

·

our ability to remain a market innovator and to create new market opportunities;

 

·

the potential need for changes in our long‑term strategy in response to future developments;

 

·

unexpected changes in significant operating expenses, including components and raw materials;

 

·

changes in the supply, demand and/or prices for our products and services;

 

·

increased competition, including from firms that have substantially greater resources than we have and in the UAS business from lower‑cost consumer drone manufacturers who may seek to enhance their systems’ capabilities over time;

 

·

the complexities and uncertainty of obtaining and conducting international business, including export compliance and other reporting requirements;

 

·

the impact of potential security and cyber threats;

 

·

uncertainty in the customer adoption rate of commercial use unmanned aircraft systems;

 

·

changes in the regulatory environment;

·

our ability to successfully integrate business we acquire;

·

unfavorable results in legal proceedings; and

 

·

general economic and business conditions in the United States and elsewhere in the world.

 

Set forth below in Item 1A, “Risk Factors” are additional significant uncertainties and other factors affecting forward‑looking statements. The reader should understand that the uncertainties and other factors identified in this Annual Report are not a comprehensive list of all the uncertainties and other factors that may affect forward‑looking

2

statements. We do not undertake any obligation to update or revise any forward‑looking statements or the list of uncertainties and other factors that could affect those statements.

 

Item 1.  Business.

 

Sale of EES Business Segment

 

On June 29, 2018, we completed the sale of substantially all of the assets and related liabilities of its efficient energy systems business segment (“the EES Business”) to Webasto Charging Systems, Inc. (“Webasto”) pursuant to an Asset Purchase Agreement (the “Purchase Agreement”) between Webasto and AeroVironment.  As of April 30, 2018, we determined that the EES Business met the criterion for classification as an asset held for sale and represented a strategic shift in our operations. Therefore, the assets and liabilities and the results of operations of the EES Business are reported in this Annual Report as discontinued operations for all periods presented.

 

The disclosures and references in this Annual Report, including financial data, the description of our business operations in this Item 1, and risk factors related to our operations included in Item 1A relate to our continuing operations, unless otherwise specifically noted.

 

Overview

 

We design, develop, produce, support and operate a technologically‑advanced portfolio of products and services for government agencies and businesses. We supply unmanned aircraft systems (“UAS”) and related services primarily to organizations within the U.S. Department of Defense (“DoD”) and to international allied governments, and tactical missile systems and related services to organizations within the U.S. Government. We derive the majority of our revenue from these business areas and we believe that the markets for these solutions have significant growth potential. Additionally, we believe that some of the innovative potential products and services in our research and development pipeline will emerge as new growth platforms in the future, creating additional market opportunities.

 

Our success with current products and services stems from our investment in research and development and our ability to invent and deliver advanced solutions, utilizing proprietary and commercially available technologies, to help our government and commercial customers operate more effectively and efficiently. We develop these highly innovative solutions by working very closely with our key customers to solve their most important challenges related to our areas of expertise. Our core technological capabilities, developed through more than 45 years of innovation, include robotics; sensor design, development, miniaturization and integration; embedded software and firmware; miniature, low power wireless digital communications; lightweight aerostructures; high-altitude systems design, integration and operations; machine vision, machine learning and autonomy; low SWaP (Size, Weight and Power) system design and integration; manned-unmanned teaming, unmanned-unmanned teaming; power electronics and electric propulsion systems; efficient electric power conversion, storage systems and high density energy packaging; controls and systems integration; vertical takeoff and landing flight, fixed wing flight and hybrid aircraft flight; image stabilization and target tracking; advanced flight control systems; fluid dynamics; robotic systems autonomy; human-machine interface development; and integrated mission solutions for austere environments.

 

Our business focuses primarily on the design, development, production, marketing, support and operation of innovative UAS and tactical missile systems and the delivery of UAS‑related services that provide situational awareness, remote sensing, multi‑band communications, force protection and other information and mission effects to increase the safety and effectiveness of our customers’ operations.

 

Our Strategy

 

As a technology solutions provider, our strategy is to grow our business by developing and acquiring innovative, safe and reliable new solutions that provide customers with valuable capabilities. Delivering these capabilities will enable us to create new markets or market segments, gain market share and grow as market adoption increases. We believe that by introducing new solutions that provide customers with compelling value we are able to create new markets or market segments and then grow our positions within those markets or market segments profitably, 

3

instead of entering established, existing markets and competing directly against large, incumbent competitors that may possess advantages in scope, scale, resources and relationships.

 

We intend to grow our business by preserving a leadership position in our core UAS and tactical missile systems markets, and by creating new solutions that enable us to create and establish leadership positions in new markets. Key components of this strategy include the following:

 

Grow existing markets and create new adjacent markets.  Our small UAS and tactical missile systems enjoy leading positions in their respective markets. We intend to increase the penetration of our small UAS products and services within the U.S. military, the military forces of allied nations, other government agencies and non‑government organizations, including commercial entities, and to increase the penetration of our tactical missile systems within the U.S. military and allied nations. We believe that the broad adoption of our small UAS by the U.S. military will continue to spur demand by allied nations, and that our efforts to pursue new applications are creating opportunities beyond the early adopter military market.

 

Deliver innovative new solutions into existing and new markets.  Customer‑focused innovation is the primary driver of our growth. We plan to continue pursuing internal and customer‑funded research and development to develop better, more capable products, services and business models, both in response to and in anticipation of emerging customer needs. In some cases, these innovations result in upgrades to existing offerings, expanding their value among existing customers and markets. In other cases, these innovations become entirely new solutions that position us to address new markets, customers and business opportunities. We believe focused research and development investments will allow us to deliver innovative new products and services that address market needs within and outside of our current target markets, and enable us to create new opportunities for growth. We view strategic partnerships as a means by which to further the reach of our innovative solutions through access to new markets, customers and complementary capabilities.

 

Foster our entrepreneurial culture and continue to attract, develop and retain highly‑skilled personnel.  Our company culture encourages innovation and entrepreneurialism, which helps to attract and retain highly‑skilled professionals. We intend to preserve this culture to encourage the development of the innovative, highly technical system solutions and business models that give us our competitive advantage. A core component of our culture is our intent to operate with trust and teamwork in all of our interactions, contributing to a positive work environment and engendering loyalty among our employees and customers.

 

Preserve our agility and flexibility.  We respond rapidly to evolving markets, solve complicated customer problems, and strive to deliver new products, services and capabilities quickly, efficiently and affordably relative to available alternatives. We believe our agility and flexibility help us to strengthen our relationships with customers and partners. We intend to maintain our agility and flexibility, which we believe to be important sources of differentiation when we compete against organizations with more extensive resources.

 

Effectively manage our growth portfolio for long‑term value creation.  Our production and development programs and services present numerous investment opportunities that we believe will deliver long‑term growth by providing our customers with valuable new capabilities. We evaluate each opportunity independently and within the context of other investment opportunities to determine its relative timing and potential, and thereby its priority. This process helps us to make informed decisions regarding potential growth capital requirements and supports our allocation of resources based on relative risks and returns to maximize long‑term value creation, which is a key element of our growth strategy. We also review our portfolio on a regular basis to determine if and when to narrow our focus on the highest potential growth opportunities.

 

Customers

 

We sell the majority of our UAS and services to organizations within the DoD, including the U.S. Army, Marine Corps, Special Operations Command, Air Force and Navy, and allied governments. We sell our tactical missile systems to organizations within the U.S. government. We also develop High Altitude Pseudo-Satellite (“HAPS”) systems for a commercial customer based in Japan.

4

 

During our fiscal year ended April 30, 2019, we generated approximately 28% of our revenue from the U.S. Army pursuant to orders placed under contract by the U.S. Army on behalf of itself as well as for several other organizations within the DoD. Other U.S. government agencies and government subcontractors accounted for 20% of our sales revenue, while purchases by foreign inclusive of foreign military sales made through the DoD, commercial and consumer customers accounted for the remaining 52% of sales revenue during our fiscal year ended April 30, 2019.

 

Technology, Research and Development

 

Technological Competence and Intellectual Property

 

Our company was founded by the late Dr. Paul B. MacCready, the former Chairman of our board of directors and an internationally renowned innovator who was instrumental in establishing our entrepreneurial and creative culture. This culture has consistently enabled us to attract and retain highly‑motivated, talented employees and has established our reputation as an innovative leader in the industries in which we compete.

 

The innovations developed by our company and our founder include, among others: the world’s first effective human‑powered and manned solar‑powered airplanes; the first modern passenger electric car, the EV1 prototype for General Motors; the world’s highest flying airplane in level flight, Helios™, a solar‑powered unmanned aircraft system that reached over 96,000 feet above sea level in 2001; Global Observer, the world’s first liquid hydrogen‑fueled unmanned aircraft system; the Nano Hummingbird™, the world’s first flapping wing unmanned aircraft system capable of precise hover and omni‑directional flight; and Blackwing™, the first submarine-launched unmanned aircraft system deployed by the U.S. Navy. The Smithsonian Institution possesses seven vehicles developed by our company or our founder in its permanent collection. Our history of innovation excellence is the result of our talented, creative and skilled employees whom we encourage to invent and develop innovative new solutions.

 

A component of our ongoing innovation is a screening process that helps our business managers identify early market needs, which assists us in making timely investments into critical technologies necessary to develop solutions to address these needs. Similarly, we manage new product and business concepts through a commercialization process that balances spending, resources, time and intellectual property considerations against market requirements and potential returns on investment. Strongly linking our technology and business development activities to customer needs in attractive growth markets constitutes an important element of this process. Through the process we revisit our customer requirement assumptions to evaluate continued investment and to help ensure that our products and services deliver high value.

As of April 30, 2019, we had issued and retained 179 U.S. patents, as well as 67 pending U.S. patent applications; 10 active Patent Cooperation Treaty applications; and numerous foreign patents and pending applications. In many cases, when appropriate and to preserve confidentiality, we opt to protect our intellectual property through trade secrets as opposed to filing for patent protection.

 

The U.S. government has licenses to some of our intellectual property that was specifically developed in performance of government contracts, and may use or authorize others to use this intellectual property. In some cases we fund the development of certain intellectual property to maximize its value and limit its use by potential competitors. While we consider the development and protection of our intellectual property to be integral to the future success of our business, at this time we do not believe that a loss or limitation of rights to any particular piece of our intellectual property would have a material adverse effect on our overall business.

 

Research, Development and Commercialization Projects

 

A core component of our business strategy is the focused development and commercialization of innovative solutions that we believe can become new products or services that enable us to create large new markets or accelerate the growth of our current products and services. We invest in an active pipeline of these commercialization projects that range in maturity from technology validation to early market adoption. We cannot predict when, if ever, we will successfully commercialize these projects, or the exact level of capital expenditures they could require, which could be substantial.

5

 

For the fiscal years ended April 30, 2019, 2018 and 2017, our internal research and development spending amounted to 11%, 10% and 12%, of our revenue, respectively, and customer‑funded research and development spending amounted to an additional 24%, 20% and 19%, of our revenue, respectively.

 

Sales and Marketing

 

Our marketing strategy is based on developing leadership positions in new markets that we create through the introduction of innovation solutions that improve customer operational effectiveness and efficiency. Our ability to operate in an agile, flexible manner helps us achieve first mover advantage and work closely with early customers to achieve the successful adoption of our solutions. Once we establish a market position we work to maintain our leadership while seeking to grow our revenue by expanding sales and through continuous innovation and customer support. Our reputation for innovation is a key component of our brand and has been acknowledged through a variety of awards and recognized in numerous articles in domestic and international publications. We have many U.S. registered trademarks including those for AeroVironment, AV, Switchblade, Raven, and Wasp, and have several pending applications for trademark registration.

 

International Sales

 

We contract with international sales representatives and team with domestic organizations in a number of foreign markets and believe that these markets represent growth opportunities for our business. Our international sales accounted for approximately 52%, 47% and 36%, of our revenue for the fiscal years ended April 30, 2019, 2018 and 2017, respectively.

 

Competition

 

We believe that the principal competitive factors in the markets for our products and services include product performance; safety; features; acquisition cost; lifetime operating cost, including maintenance and support; ease of use; rapid integration with existing equipment and processes; quality; reliability; customer support; and brand and reputation.

 

Manufacturing and Operations

 

We pursue a lean and efficient production strategy across our business, focusing on rapid prototyping, supply chain management, final assembly, integration, quality and final acceptance testing. Using concurrent engineering techniques within an integrated product team structure, we rapidly prototype design concepts and products, while working to optimize our designs to meet manufacturing requirements, mission capabilities and customer specifications. Within this framework we develop our products with feedback and input from manufacturing, quality, supply chain management, key suppliers, logistics personnel and customers. We incorporate this input into product designs in an effort to maximize the efficiency and quality of our products while minimizing time to market. As a result, we believe that we significantly reduce the time required to move a product from its design phase to full rate production deliveries while achieving high reliability, quality and yields.

 

We outsource certain production activities, such as the fabrication of certain aerostructures, the manufacture and assembly of electronic printed circuit boards, payload components, and the production of our Quantix drone, to qualified suppliers, with many of whom we have long-term relationships. This outsourcing enables us to focus on our core expertise of final assembly, system integration and test processes for our products, ensuring high levels of quality and reliability. We forge strong relationships with key suppliers based on their ability to grow with our production needs and support our growth plans. We continue to expand upon our suppliers’ expertise to improve our existing products and develop new solutions. We rely on both single and multiple suppliers for certain components and subassemblies. (See “Risk Factors—If critical components or raw materials used to manufacture our products become scarce or unavailable, then we may incur delays in manufacturing and delivery of our products, which could damage our business” for more information.) All of our production systems operate in accordance with our AS9001D registered Quality Management System (QMS), which is focused on continuous improvement in order to increase acceptance rates, reduce lead times and lower cost.

6

 

Customer Funded Research and Development

 

We actively pursue externally funded projects that help us to strengthen our technological capabilities. Our UAS business submits bids to large research customers such as the Defense Advanced Research Projects Agency, the U.S. Air Force, the U.S. Army and the U.S. Special Operations Command for projects that we believe have future commercial application. In some cases commercial enterprises may fund our research and development activities, as with our HAPSMobile Inc. development program. Providing these services contributes to the development and enhancement of our technical competencies. In an effort to manage the ability of our key technical personnel to support multiple, high‑value research and development initiatives, we attempt to limit the volume of customer funded research and development projects that we accept. This process enables us to focus these personnel on projects we believe offer the greatest current and future value to our business.

 

Seasonality

 

Historically our revenue in the second half of our fiscal years has exceeded our revenue in the first half of our fiscal years. Our revenue was balanced between the first and second halves of fiscal year 2019. The factors that affect our revenue recognition between accounting periods include the timing of new contract awards, the availability of U.S. government and international government funding, lead time to manufacture our family of systems to customer specification, customer acceptance and other regulatory requirements.

 

Raw Materials and Suppliers

 

Historically, we have not experienced significant delays in the supply or availability of our key raw materials or components provided by our suppliers, nor have we experienced a significant price increase for raw materials or components.  We do not anticipate any such delays or significant price increases in our fiscal year 2020.

 

Contract Mix

 

The table below shows our revenue for the periods indicated by contract type, including both government and commercial sales:

 

 

 

 

 

 

 

 

 

 

 

 

 

Fiscal Year Ended

 

 

 

 

April 30,

 

 

 

    

2019

    

 

2018

    

 

2017

 

 

Fixed-price contracts

 

71

%

 

79

%

 

76

%

 

Cost-reimbursable contracts

 

28

%

 

21

%

 

23

%

 

Time-and-materials contracts

 

 1

%

 

 —

%

 

 1

%

 

 

Employees

 

As of April 30, 2019, we had 699 full time employees, of whom 254 were in research and development and engineering, 36 were in sales and marketing, 244 were in operations and 165 were general and administrative personnel. We believe that we have a good relationship with our employees.

 

Backlog

 

Consistent with ASC Topic 606, Revenue from Contracts with Customers (“ASC 606”), we define backlog as remaining unsatisfied performance obligations under firm orders for which work has not been performed. As of April 30, 2019 and 2018, our backlog was approximately $164.3 million and $164.4 million, respectively. We expect that approximately 92% of our backlog will be filled during our fiscal year ending April 30, 2020.

 

In addition to our backlog, we had unfunded backlog of  $45.2 million and $58.1 million as of April 30, 2019 and 2018, respectively. We define unfunded backlog as the total remaining potential order amounts under cost

7

reimbursable and fixed price contracts with (i) multiple one‑year options, and indefinite delivery, indefinite quantity, or IDIQ contracts, or (ii) incremental funding. Unfunded backlog does not obligate the customer to purchase goods or services. There can be no assurance that unfunded backlog will result in any orders in any particular period, if at all. Management believes that unfunded backlog does not provide a reliable measure of future estimated revenue under our contracts. Unfunded backlog does not include the remaining potential value associated with a U.S. Army IDIQ‑type contract for small UAS because that contract was awarded to seven companies in 2018, including AeroVironment, and we cannot be certain that we will receive all task orders issued against the contract.

 

Because of possible future changes in delivery schedules and/or cancellations of orders, backlog at any particular date is not necessarily representative of actual sales to be expected for any succeeding period, and actual sales for the year may not meet or exceed the backlog represented. Our backlog is typically subject to large variations from quarter to quarter as existing contracts expire, are renewed, or new contracts are awarded. A portion of our contracts, specifically our IDIQ contracts, do not obligate the U.S. government to purchase any goods or services. Additionally, all U.S. government contracts included in backlog, whether or not they are funded, may be terminated at the convenience of the U.S. government.

 

Other Information

 

AeroVironment, Inc. was originally incorporated in California in July 1971 and reincorporated in Delaware in 2006.

 

Our principal executive offices are located at 900 Innovators Way, Simi Valley, California 93065. Our telephone number is (805) 520‑8350. Our website home page is http://www.avinc.com. We make our website content available for information purposes only. It should not be relied upon for investment purposes, nor is it incorporated by reference into this Annual Report.

 

We make our annual reports on Form 10‑K, quarterly reports on Form 10‑Q, current reports on Form 8‑K and proxy statements for our annual stockholders’ meetings, as well as any amendments to those reports, available free of charge through our website as soon as reasonably practical after we electronically file that material with, or furnish it to, the Securities and Exchange Commission, or SEC. You can learn more about us by reviewing our SEC filings. Our SEC reports can be accessed through the investor relations page of our web site at http://investor.avinc.com. The SEC also maintains a web site at www.sec.gov that contains our reports, proxy statements and other information regarding us.

 

Our Business

 

Our UAS business addresses the increasing economic and security value of network‑centric intelligence, surveillance and reconnaissance (“ISR”), communications, remote sensing and effects delivery with innovative UAS and tactical missile system solutions.

 

Industry Background

 

Small UAS

 

The defense market for small UAS has grown significantly since the early 2000s driven largely by the demands associated with the global threat environment and resulting procurement by military customers, the early adopters for this technology. Small UAS now represent an accepted and enduring capability for the military. The U.S. military’s transformation into a smaller, more agile force that operates via a network of observation, communication and precision targeting technologies accelerated following the terrorist attacks of September 11, 2001, as it required improved, distributed observation and targeting of enemy combatants who operate in small groups, often embedded in dense population centers or dispersed in remote locations, to operate effectively in a counterinsurgency threat environment. We believe that UAS, which range from large systems, such as Northrop Grumman’s Global Hawk and General Atomics’ Predator,  Sky Warrior,  Reaper and Gray Eagle, to small systems, such as our Raven, Wasp AE, and Puma AE, serve as integral components of today’s military force. These systems provide critical observation and communications capabilities serving the increasing demand for actionable intelligence, while reducing risk to individual “warfighters.”

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Small UAS can provide real‑time observation and communication capabilities to the small units who control them. As airspace regulations in the U.S. and other nations evolve to accommodate the commercial use of small UAS, significant growth in the number of entities developing small UAS solutions for markets such as precision agriculture is taking place.

 

Tactical Missile Systems

 

The development of weapons capable of rapid deployment and precision strike that also minimize the risk to surrounding civilians, property and operators has accelerated due to advances in enabling technologies. Weapons such as laser‑guided missiles, “smart” bombs and GPS‑guided artillery shells have dramatically improved the accuracy of strikes against hostile targets. When ground forces find themselves engaged in a firefight or near a hostile target, their ability to employ a precision weapon system quickly and easily can mean the difference between mission success and failure. A rapidly deployable solution could address emerging requirements beyond ground engagements for use in other types of missions and from a variety of sea, air and land platforms. We believe that embedding a precision lethal payload into a remotely controlled, man‑portable delivery system provides warfighters with a valuable and more cost‑effective alternative to existing munition and missile systems.

 

High-Altitude Pseudo-Satellite, or HAPS, UAS

 

We believe a market opportunity exists for HAPS UAS that can fly for months at a time to provide continuous remote sensing and communications in an affordable manner over great distances. Existing solutions such as terrestrial cellular towers, communications satellites and manned and unmanned aircraft address some of the emerging demand for this capability, but do so at relatively high financial and resource costs. Next generation mobile telephony, referred to as 5G, can use higher frequencies than those currently employed by 4G and LTE networks.  These higher frequencies are not capable of traveling large distances as compared to the frequencies associated with existing networks.  As a result, 5G deployment requires the installation of a large number of base stations and cellular towers to complement existing infrastructure, resulting in a significant investment of time, resources and capital. Geosynchronous satellites provide fixed, continuous communications capabilities to large portions of the globe, but they operate more than 20,000 miles from the surface of the earth, therefore limiting the bandwidth they can provide, introducing latency in communications signals and requiring relatively larger, higher power ground stations. Remote sensing satellites typically operate at lower altitudes, but are unable to maintain geosynchronous positions, meaning they are moving with respect to the surface of the earth, resulting in a limited presence over specific areas of interest and significant periods of time during which they are not present over those areas. A new category of constellations consisting of a large number of very small and low earth orbiting satellites is proposed to provide a lower cost alternative with more ubiquitous coverage for reconnaissance and communication, but has yet to be deployed in meaningful quantities and may not be capable of providing the uninterrupted service and quality required by commercial mobile carriers.  High-altitude balloons carrying communication payloads are subject to wind direction and speed, and therefore may not be able to deliver the continuous, uninterrupted service and connection quality required by commercial mobile carriers. UAS that are capable of operating in an affordable manner for extended periods of time over an area of interest without gaps in availability while carrying a communications or observation payload could help to satisfy this need.

 

Our Solutions

 

We supply our UAS products and services to multiple customers within and outside of the United States.

 

Small UAS Products

 

Our small UAS, including Raven, Wasp AE, and Puma AE, are designed to operate reliably at very low altitudes in a wide range of environmental conditions, providing a vantage point from which to collect and deliver valuable information. Military forces employ our small UAS to deliver ISR and communications, including real‑time tactical reconnaissance, tracking, combat assessment and geographic data, directly to the small tactical unit or individual operator, thereby increasing flexibility in mission planning and execution. In commercial applications, we operate our small UAS as part of a turnkey information solution to deliver advanced analysis that can reduce customers’ costs, enhance their safety and increase their revenue. Our small UAS wirelessly transmit critical live video and other

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information generated by their payload of electro‑optical, infrared or other sensors directly to a hand‑held ground control unit, enabling the operator to view and capture images, during the day or at night, on the control unit. Our Quantix data collection drone generates a volume of high-resolution data significantly larger than wireless bandwidth can accommodate, requiring the transfer of data once the air vehicle has landed. With the exception of Quantix, our ground control systems allow the operator to control the aircraft by programming it for GPS‑based autonomous navigation using operator‑designated way‑points, or by manual flight operation. The ground control systems are designed for durability and ease of use in harsh environments and incorporate a user‑friendly, intuitive user interface. All of our fixed wing small UAS currently in production for military customers operate from our common ground control system. Our Quantix system plots its own flight path and launches, flies and lands autonomously to complete its mission.

 

We designed our small UAS to be transportable by a single person, assembled without tools in less than five minutes and launched and operated by one or two people, with limited training required. The efficient and reliable electric motors used in all of our small UAS are powered by modular battery packs that can be replaced quickly, enabling rapid return to flight. We designed all of our small UAS to be reusable for hundreds of flights under normal operating circumstances and to be recovered through an autonomous landing feature that enables a controlled descent to a designated location.

 

In military applications, our small UAS provide forward aerial observation capabilities that enable tactical commanders to observe around the next corner, to the next intersection or past a ridgeline in real‑time. This information facilitates faster, safer movement through urban, rural and mountainous environments and can enable troops to be proactive based on field intelligence rather than reactive to attack. Moreover, by providing this information, our systems reduce the risk to warfighters and to the surrounding population by providing the ability to tailor the military response to the threat. U.S. military personnel regularly use our small UAS, such as Raven, for missions such as force protection, combat observation and damage assessment. These reusable systems are easy to transport, assemble and operate and are relatively quiet when flying at typical operational altitudes of 200 to 300 feet above ground level, the result of our efficient electric propulsion systems. Furthermore, their small size makes them difficult to see from the ground. In addition, the low cost of our small UAS relative to larger systems and alternatives makes it practical for customers to deploy these assets in large quantities directly to warfighters.

 

In emerging commercial applications, our small UAS enable enterprises to manage valuable assets such as crops, powerlines and railroad infrastructure, more effectively and safely than previously possible. Our Quantix data collection drone and AeroVironment Decision Support System (“AVDSS”), a cloud‑based platform for processing, analyzing and storing collected data, are designed to provide agriculture operations with more accurate and timely information regarding their crops. Better and more timely information can translate into more efficient activities that facilitate more efficient use of scarce resources such as water for agriculture.

 

Our small UAS offering also includes spare equipment, alternative payload modules, batteries, chargers, repair services and customer support. We provide training by our highly‑skilled instructors, who typically possess extensive military experience, and continuous refurbishment and repair services for our products. We designed our Quantix system for minimal training so customers can learn how to operate it on their own. By maintaining close contact with our customers and users in the field, we gather critical feedback on our products and incorporate that information into ongoing product development and research and development efforts. This approach enables us to improve our solutions in response to, and in anticipation of, evolving customer needs.

 

Each system in our small UAS portfolio typically includes multiple aircraft, our common and interoperable hand‑held ground control system and an array of spare parts and accessories. Our current small UAS portfolio for defense applications consists of the following aircraft:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Small

    

 

    

 

    

 

    

 

    

 

    

 

 

 

 

UAS

 

Wingspan

 

Weight

 

 

 

Standard

 

Range

 

Flight Time

 

Product

 

(ft.)

 

(lbs.)

 

Recovery

 

Sensors

 

(mi.)(1)

 

(min.)(1)

 

Puma AE

 

9.2

 

14

 

Vertical autonomous landing capable (ground or water)

 

Mechanical pan, tilt, zoom and digital zoom electro-optical and infrared

 

9.0

 

 

 

210

 

Raven

 

4.5

 

4.5

 

Vertical autonomous landing capable

 

Mechanical pan, tilt, zoom and digital zoom electro-optical and infrared

 

6.0

 

60

-

90

 

Wasp AE

 

3.3

 

2.8

 

Vertical autonomous landing capable (ground or water)

 

Mechanical pan, tilt, zoom and digital zoom electro-optical and infrared

 

3.0

 

 

 

50

 


10

(1)

Represents point‑to‑point minimum customer‑mandated specifications for all operating conditions. In optimal conditions, the performance of our products may significantly exceed these specifications. Our digital data links (“DDL”) relay can enable operational modes that can extend range significantly.

 

The ground control system serves as the primary interface between the operator and our small UAS designed for defense applications, and allows the operator to control the direction, speed and altitude of the aircraft as well as the orientation of the sensors to view the visual information they produce through real‑time, streaming video and metadata. Our common ground control system interfaces with each of our air vehicles, providing a common user interface with each of our air vehicles. In addition to the thousands of air vehicles delivered to our customers, thousands of ground control systems are also in our customers’ hands.

 

Our line of miniature gimbaled sensor payloads provides small UAS operators with enhanced observation and target tracking functionality. Our DDL is integrated into Puma AE, Raven and Wasp AE systems, enhancing their capabilities, and ultimately, the utility of our small UAS by enabling more efficient radio spectrum utilization and communications security. Small UAS incorporating our DDL offer many more channels as compared to our analog link, increasing the number of air vehicles that can operate in a given geographic area. Additionally, our DDL enables each air vehicle to operate as an Internet‑Protocol addressable hub capable of routing and relaying video, voice and data to and from multiple other nodes on this ad hoc network. This capability enables beyond line‑of‑sight operation of our small UAS, further enhancing their value proposition to our customers.

 

Tactical Missile Systems Products

 

Our tactical missile systems consist of tube-launched aircraft that deploy with the push of a button, fly at higher speeds than our small UAS, and perform either effects delivery or reconnaissance missions.  Switchblade, the first of our tactical missile systems products, can be transported in its launch tube, within a backpack, and deployed within minutes to defend against lethal threats such as snipers and mortar launchers.  With a high level of precision, including a customized warhead, wave-off, loiter and re-engagement capabilities, Switchblade can neutralize a target rapidly and accurately without causing collateral damage. Furthermore, because it streams live electro-optical and thermal video to its operator, Switchblade can be called off in the final moments prior to a strike should the situation require, minimizing damage to non-combatants.  Blackwing, a variant of Switchblade, launches from a submerged submarine and carries extra batteries instead of a warhead, providing longer flight time for reconnaissance operations.

 

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