AeroVironment, Inc. (AVAV) Earnings Call Transcript & Summary

Good morning, everybody. Welcome to AeroVironment's Investor Day 2022. Thank you so much for coming out and joining us. We're really happy to have you. It's been 4 years since our last event, and definitely the first one since COVID. So super nice to meet everybody in person, see everyone face-to-face. I know it's been a long time coming. We've got a packed agenda for you today. We will be having Kevin and Wahid talk about what's happened since we last got together and also where we see the future coming for the company. And you will also get to hear from 3 of our Vice President and General Managers running the 3 largest business segments for AeroVironment. So we're super excited for that. We're also going to show off our MUAS facility, which was purchased in the Arcturus acquisition 2 years ago. That's the main reason we're having the event here today. So excited to show you that as well. I appreciate your help to keep things on task. We'll be doing that on our side. But just when we take breaks, make sure you're back on time and back promptly. For those of you who don't know me, I am Jonah Teeter-Balin, I head Investor Relations and Corporate Development for the company. I know we've exchanged a lot of e-mails, we've been on a lot of FaceTime calls and Zoom calls, et cetera, but really excited to be able to meet with you and talk with you in person today. And now to get everybody excited for why we're here. [Presentation]

All right. We're excited. We got a lot of good stuff to share with you today. But first, I have to cover some of the boring stuff. So bear with me. So first, I just want to mention that some of the content today may contain forward-looking statements under the Securities and Litigation Reform Act of 1995. For more details on these risks, you can check out our 10-K, the risk factors discussed therein and also our other periodic SEC filings. In terms of the agenda, I would now like to welcome Wahid Nawabi, our President, Chairman and Chief Executive Officer, to talk you through where we've been and where we're going. Wahid, welcome.

Thank you. Good morning, everybody. Thank you for making it out here. And I'll try to keep this brief and succinct. Majority of the conversation today really is about where we're headed in the future and what our strategy looks like and why is this an exciting journey that we're really looking forward to it. We're excited about it. Our team is energized. And so I would like to actually take a moment to introduce some of our team members that are here of our leadership team. You all know Kevin McDonnell, our CFO, who's been in the industry for -- well, CFO for pretty much all -- all of his career, business background, many different industries and has been my partner in this for the last couple of years with us so far. He also oversees IT, also oversees we can refer to as people and culture, our HR department. So he's got a lot of other background experiences and expertise that is very helpful to the company. Jonah, you've already know, Jonah Teeter-Balin. He is in charge of our Corporate Development as well as Investor Relations; Gorik Hossepian, who's going to talk to you a few minutes later, he has a presentation on Medium UAS, we're in a Medium UAS facility. He runs that business for us, the product line. And of course, his claim to fame for me is that there's not an airplane in the U.S. Aerospace and Defense that he doesn't have -- has not developed as has a part in it, or some system or subsystem within that equipment. 30-plus years of experience, lots of backgrounds and engineering background. A lot of our folks are engineers as well. So you'll see that. Trace Stevenson, who is in the back of the room. He's our General Manager, Vice President in charge of our Small UAS business or product line. He's been in the company for over 12 years, I think it is, 18 years, so way longer than I have been with the company. And you see a lot of and folks in our -- at this room that have been with us for quite a while. He runs our, what I refer to as our largest product line in business, who's also our core franchise that we've built the company around over the last 2 decades. Spend time in finance. He's got a business background and understands the product. He's very familiar with the company and our products and our business as well. All of us, except Gorik now really is out of our Simi Valley facility, we travel quite everywhere. Charlie Dean, who is standing back there, sitting there, Lieutenant Colonel Charlie Dean, I should say, retired, is our Vice President of Global Sales, Marketing and Program Management, which is related to the customer side and field service representatives, field service reps, though, the training and demonstration of our systems that we do with our customers. Charlie has an extensive military background, extensive. That's an understatement, actually. Also an engineer and MIT grad, could have been a professor easily, and as well as has an enormous amount of experience when it comes to unmanned systems, ground robots, UAVs, really built that business for Endeavor Robotics, as you're familiar with them, who's now part -- which has been now part of Teledyne. And so he's been with us for a few years, and really, really glad to have you with us as well. Trying to think of who else am I missing. Melissa Brown, who's sitting on the corner here or another side of the room, is our Corporate Vice President, Secretary of the Company and General Counsel. She also handles our facilities, compliance, as well as exports and contracts. So a lot of different functions that has to do with supporting the business as part of her responsibility. I want to -- Cindy, I saw her. Cindy is back there. Cindy Jacobson, the Head of our marketing, a lot of experience as well. Brett Hush, I would say, who's sitting next to Cindy is our VP and General Manager for Tactical Missile Systems, a Switchblade product line. He also has a similar background as many of the other folks that I mentioned in the room. An engineer, I must say, and the 2 schools that I'm never going to forget, Clarkson and Syracuse University, electrical engineer. And so he's been with our company. Actually, he started the Switchblade family of products for AV almost 2 decades -- at least decade and a half, I would say, right, roughly that long. Extensive background in aerospace and defense, knows a lot about our business and products. Okay. Before I go any further -- oh, I'm sorry, [ Kristy ]. I missed Ms. [ Kristy ]. She is our Corporate Treasurer and in charge of our Finance and Corporate Finance and Planning, FP&A. She's been with us for about 2 years now? 2 years. Lots of different experiences, and also based out of our Southern California office and works with Kevin and the rest of our team. I'm sorry, I -- for some reason, I just skipped right next to -- sitting next to that. I don't think I missed anybody. Anybody? No? Okay. Great. So let's talk about our company and where we're going and what our strategy is. Before we go into the details of where we're going, I wanted to share with you a little bit about where we've come from in the last 5 years. And I've been in this role for -- this is my sixth year, I believe. We have really evolved as a company tremendously over the last 6 years. And the credit goes to all our team members, the folks that I mentioned and the people behind them. Our geographical footprint has grown dramatically. We were pretty much a Simi Valley California-based company 6 years ago, 5 years ago, even if you looked at us. A majority of our operations, our presence, our production engineering was all in Southern California. And we also had a limited customer overseas. We were growing internationally, but we were not close to 55 countries. Now we actually export to 55 countries around the world, primarily our Small UAS, and hopefully, very soon, our Tactical Missile Systems product line as well and our Medium UAS product line. Location-wise, we're quite global. We have facilities in Southern California, Northern California, various states. Headquarters is now in Arlington, Virginia, down in Crystal City. We have facilities and innovation centers in Boston area, New England. We have an innovation facility -- innovation center in DC area outside of our corporate headquarters, where a lot of our autonomy and AI and machine learning engineering is based out of. We've got facilities in Huntsville, we got facilities in Kansas, we've got a facility in Minnesota. So just in the United States, our footprint has really grown quite a bit with the growth. Also, we have a facility now in Germany, as you know. And close to near Stuttgart is where we manufacture and design all of our ground robots, which was an acquisition that we did. Our workforce has actually more than doubled. We were about sub-600 employees. We're now over 1,200 employees. Obviously, our revenue has more than doubled. We were south of $200-and-some-odd million, and we're now, this year, as we provided the guidance last quarter, and I'm going to stay clear of this quarter's financials because we're not in a quiet period, but I'd rather not discuss those things at this setting for the rules that Jonah just went over a little safe harbor statement. So our R&D investments are at record high levels, and we are really outpacing competitors on almost every single segment of our business. If you look at it from a market share perspective, installed base, customer base, whatever metric you want to look at, portfolio of our products is dramatically, dramatically above -- way above -- head and shoulders of our competitors in the market. And really, if you go in the industry and talk to our customers, we are the company that everybody wants to be compared to or use as a reference point. And so the credit really goes to our team. We're very proud of those accomplishments. But we're not going to stop here, and we're not satisfied yet. We're very proud of this. We believe the next 5 years is going to be even more exciting for us based on the opportunities that I'm going to share with you and the strategy that we have going forward. That really is the cornerstone of our discussion today, and we want to share that with you and why we believe in it, why you should believe in it, why should our investors look forward to very good returns. And of course, in terms of returns for our shareholders, we've done quite well based on these successes we've had over the last 5-plus years. Okay. So what is our future state? I call this our future status. What are we looking forward to? Fundamentally, the core strategy of our company is that when it comes to intelligent multi-domain robotic systems, we want to be, and we are and we're going to continue to be the go-to company on the face of this planet. When it comes to defense and commercial applications, intelligent multi-domain robotic systems for defense and commercial markets, these words are very specifically chosen. I express that to our employees, to our shareholders, to our customers repeatedly. Intelligent means really that it's all wrapped with autonomy, AI, machine learning and intelligence. The things that takes a lot of the cognitive load away from the burden from the soldier or operator or user itself. And it also allows them to actually interact and interoperate with each other, okay? Multi-domain, we are already at least in 2 domains. You can argue that we're in 3 to 4 domains. We flew in this atmosphere of Mars, that's technically a domain space. We're in air robotics, ground robotics and you could claim that Blackwing, which is part of Switchblade's family system, is an underwater UAV that gets launched from subwater, underneath the water and then comes out and then it starts to fly above it. But we're not going to stop there. So our portfolio is the broadest and deepest portfolio of solutions when it comes to that capability anywhere in the face of this planet. And I challenge anyone to come up with another pure-play company that has this deep and broad portfolio of solutions that's around that particular theme. And this is not because that's what we want to do. It's that's what our customers want to do. If you talk to the U.S. Army, to our 50-plus allies around the world, to Air Force, to Navy, Marines, they want these systems to be integrated, their strategy of their [ NIC ] capability gaps and future force structure requires and demands these types of solutions. And what we want to do is to be the company to continue to deliver that to them as we go forward. That's really at the core of our strategy. Okay. So the other thing I wanted to mention is, let's see if I can stand somewhere that I could do this easier. Our portfolio. I mentioned about our portfolio. Look at what we offer just on a fixed wing UAV, Small UAS, what you see from our Wasp AE, Raven, Puma AE and Puma LE, then we have our unmanned helicopter solutions that you're going to see some of those demos today later this afternoon, right after lunch, I believe, is the time. Quantix Recon, then we have ground robot solutions. We did an acquisition with Arcturus, which is now our Medium UAS, which is a Group 2 and 3 UAV that's expanding. Solar stratospheric HAPS as an application for both commercial and defense. And then all the other supporting gear that goes along with it, which is a Digital Data Link, Ground Control Station, our ground robots, of course, don't want to forget about our Switchblade family systems, a growing family. And so if you look at this portfolio 6 years ago, I would say, it was significantly less offering than what it is, more than triple probably in the depth and breadth of the product line. That's one thing. The product lines that we have now, it's actually 6 distinct product lines that I mentioned, Small UAS, Medium UAS, Tactical Missile Systems, HAPS, MacCready Works, which is basically -- I'm going to talk about it in a little second and then Unmanned Ground Vehicles, UGV business. So those 6 product lines comprise all of our business as an enterprise. And the MacCready Works is where majority of our organic businesses were born from. Small UAS was given birth, I call it, and our MacCready Works innovation, CRAD, consider it the very, very futuristic programs and projects that we do there. The current Mars Helicopter, Ingenuity, was conceived, proposed, NASA had to be convinced and then developed and made into a capability that everybody around the world knows about it. So Switchblade and our Tactical Missile Systems came from the same area. Our Ground Control Stations came from the same area. So it is the place where we do innovations that are far beyond 1 year, 2 years, 3 years out. And we have several, several exciting portfolio of projects, activities with the customer in terms of programs and innovations that is happening within our MacCready Works is extremely exciting, many of which I'm not able to talk about primarily because of the sensitivity of our customers to those projects. Okay. I hope that I'm going to do okay in time because Jonah has given me a challenge here. So I can say, okay, great. So the next thing I want to mention to you is about our evolution in terms of inorganic. Historically, AeroVironment has been a very, very organic focused-centric company for the last almost 40 years of our existence. Last 6 years has been actually quite a dramatic difference. I don't say that we're just going to grow based on acquisitions. That's not our strategy. But if you look at our portfolio and look at our business strategy, it's very easy to see that as our portfolio grows and our mission sets for our customers becomes more and more demanding in terms of requirements and missions they want to do, we have to make sure that we fill those gaps in terms of either capability, coverage in the customer base, distribution or products. So it's -- in the last 5 years, we've actually done 5 acquisitions, small and something -- somewhat large relative to our size. And the first one was the Vapor product line, which is part of our Small UAS business, Trace's business. In AI, machine learning, you're going to see an example of that in the demo today, where we have taken our in-house capabilities, coupled with this acquisition of Progeny Vision Systems, that now makes up, which is part of our MacCready Works, that's focused on delivering these capabilities to all of our product lines across the entire portfolio. And you will see an example of it today in a demo, I believe, today, very, very exciting. The things that we're doing is -- this is actually a capability we're going to be delivering now. It's not something that we're promising for 2 years or 3 years from now. It's the capability that we're delivering now that allow our UAVs up to fly in GPS denied, comms denied environments, very, very contested environments. And a lot of the success you see about our products in the field is because of these capabilities that are already built into our products. We acquired Arcturus, which is now our Medium UAS, that Gorik runs the facility we're in now, which really give us access to a much bigger market. And then, of course, the ground robots, and then the last one was Planck Aerosystems, which was literally a few weeks old or maybe a month or so old, it now also as part of our Medium UAS and gives us some specific capabilities that Gorik is going to talk more about it. So our evolution, our transformation is going to continue. We believe in the next 3 to 5 years, there will be many opportunities for these gap-filling capabilities and opportunities for us to act on and do that. We're not waking up every day, [ and this is all ] what we're going to do, but as those opportunities present themselves and they make sense and they actually accelerates our execution of our strategy to get to our future state faster than organic, we will absolutely consider that. It will be part of our strategy. Okay. So long-term objectives. This is a question that I'm always asked. There's a saying that we have that the rate of disruptive adoption is very, very hard. The timing of disruptive adoption, innovation is really hard to predict exactly when it's going to happen. You see the examples of that in every industry. We were talking to Ken last night about other companies that are in a similar situation, right? But in general, we believe now with a diversified portfolio of businesses, customers, geographies and markets that we are in, we have been a growth company, and we will continue to be a growth company. And so our expectation is to grow at the rate that we've been growing in the past or even better, okay, even though we were much larger relative to 5 years ago. We will continue to invest in R&D, as we have done in the past because we believe that our growth and our customer needs require, our business model requires that. We invest quite strongly, I call it, not heavily, very judiciously. But the reason why we do that is because it allows us to develop the capabilities that our customers are expecting from us, and we expect that to continue. We believe that the size of our team and our areas of expertise will continue to grow. That is absolutely in our strategy and our focus. There are many new areas that I'm going to talk about in the next couple of slides that we believe we are extremely well-positioned to be the go-to company to help our customers with the capabilities they're looking for in the future, not only just next year or the year after, but the next 5-plus years. We're positioned extremely well. Think about if you were the U.S. Military or allies, the future is all about unmanned systems. And interoperability, you all know this from many, many, many industry trades and presentations and strategy documents that are out there that it's all about how you -- the conflicts that are going on today, that how important is the interoperability of these systems together and do things much more seamlessly. So one thing I'm going to mention is resiliency. We have been proud of this for many decades even though during the COIN conflicts in the Middle East or Afghanistan or other places in the last decade plus, that what our customers really care about is that our system is going to work when they need them to work, when they want them to work to do the functions they have to do. Today, I would say that the conflict in Ukraine has proven to the world that if your system is not resilient and proven to work in contested airspace against the peer-to-peer or near-peer adversary, you're not relevant. You're not relevant. It just has become -- it's table stakes. And so we strongly believe that we have a significant advantage here and we're going to continue to build on that advantage as we go forward. There are many things we want to do that we don't do today that it's in our roadmap that is all around resiliency of our solutions in contested airspace or battlespace or ground space, it doesn't matter. And our investment in AI and autonomy is one of the core, core cornerstone of that strategy. The investments that we've made 5-plus years ago in this area is starting to provide what I call dividend or yield results for us now. A couple of the demos you're going to see today in our UAVs is specifically around this construct or this theme. And Brett Hush and Trace is going to talk about some of this today as part of their product capability as well as to where we're going with that. Our product line will continue. Our workforce will continue, of course, grow. Our business processes of easy to do business. One of the things, as you know, that I've always talked about is we are not the biggest company. We don't have the largest lobbying force. We're agile, we're innovative and we're very, very close to our customers. Those are the 3 things that we really, really focus on as part of our core competitive advantages. Innovation is based on our R&D and our product portfolio, disruptive innovation. Agility is, by far, the most important thing. We've had systems that we've had in the field, and if we had run into some kind of resiliency issues, within a matter of weeks in the last 6 to 9 months, we've been able to develop a solution, roll out a software upgrade, take it to the field, into the battlespace and update our products. That level of agility and flexibility with our customers and speed is incredibly important and what a lot of customers know AeroVironment for, okay? And then, of course, we want to be a Great Place to Work. It's fundamentally this is our third consecutive year in a row, I believe, that we have won the Great Place to Work accolade as part of an organization. Fourth, I think third or fourth years in a row. So we're on our fourth year. We just got the fourth-year consecutive won, and it's one of -- that's an organization that essentially do their own surveys, they go talk to our customers that [ are anonymous ], and we've been now 4 years in a row. And so people who come to work at that environment. And I mentioned that because I'm very focused on that and I'm proud of that is that this is not just a place to clock in and clock out and get a paycheck. It's most of the people we have, they have a passion. They have a direct connection with our capabilities and what it does for our customers. Many, many, what I call, personal connections with what we do for the warfighter or for our customers because of either their background or their experiences or their family or their personal desires and passions. And then last but not least, if we do all that right, I am certainly confident that we will take care of our shareholders, and we'll have oversized returns as we've had in the past for our shareholders. That's really part of our strategy. Okay. So why do we believe in that type of a strategy and future state and outcomes for us? The reason is because a lot of the outside forces are in our favor. They are really, really aligned with our strategy and where we're going. The war in Ukraine has woken the world up to the construct of small, not even medium or large, at least small and medium UAVs and loitering munitions and how these things together can do things for us -- can do for our customers. Even in a near-peer to peer-to-peer conflict, the videos, the messages, the stories that you guys see of what Ukraine is doing against the Russian forces all over their fronts, just an incredible example of the Pentagon waking up, Congress waking up, 50-plus of our allies waking up, realizing this is a must-have. This is not a nice to have or a niche thing. It's fundamental to one of the most important markets that we serve, the defense industry. The war has also actually has validated the efficacy of these systems, that how you use them could make a huge difference. We're technically fighting a proxy war as a nation without any of our own boots on the ground. But we're extremely successful helping Ukraine make progress. You know this better than I do. And it's primarily because of the capabilities that we provided them. And majority of that capability is around the systems that I'm talking about and plus some more, of course, things such as [indiscernible] other capabilities, too. And then from a policy standpoint, I think not only the U.S. government or not only just DoD, but Congress and the administration has realized we need to upgrade and invest in our defense infrastructure, call it, and capabilities, systems that need to be replaced, systems that need to be upgraded, systems that need to go to the next level. Pretty much all of our allies in Europe and then some have a similar, similar sentiment. Everybody [ is -- had ] to raise their defense spending or going to a doubling and tripling in some cases, right? And so despite the macroeconomic forces of higher inflations and potentially a recession, we believe this is one area that I don't see how it could be very -- that could be negatively impacted because of all these other positive [indiscernible] and trends that are going on. Now when there's a recession, everything gets affected to some extent. But I believe that we're very fortunate based on where we are and what is going on in our markets that we're in a much, much better position than majority of other companies that are in this space or in any industry, in my view, okay? So that's actually a very, very good sort of a position to be in and a situation that we could execute our strategy. I don't think that investments in autonomous systems, unmanned ground robots, unmanned UAVs, subsea systems, autonomous systems, loitering missiles is going to take a hit anytime soon. It's going to be a market that is going to attract more competitors, more investments and more opportunity for growth. And we're very, very fortunate to be in a position we're in to sort of leverage that and help grow our business and help our customers. So we're very well positioned, and we're going to continue to invest, and we expect to continue to grow at those double-digit figures that we have been in the past several years. Okay. So last slide. Future for us has never been brighter. I've been here for 12 years. Honestly, we've had some really, really great years, outstanding journey so far, but I do believe that we're extremely positioned well, and I don't think that, and I've said this many times to our employees and our customers, too, that the future prospects for growth and value creation for us has been better than what it is in my 12 years in the company. We have a very clear plan for growth in supporting our global presence and our global customer base. We really do. Every one of our businesses, you're going to hear from some of them, and you're going to ask questions on that, and I encourage you to do so to the level that we can answer them and give you those nonsensitive parts of the story we will help you with. We are the leader in the markets we're in. And then our transformation is going to continue. I expect us to continue to go down this journey. Our team is excited about it. And I do believe that we have the right team and the right capabilities to keep building upon the future. And so the last thing is that we're going to do that based on staying close to our customers, investing in innovation and then being extremely agile and fast to changing direction or adjusting to our customers' needs. Those are the 3 things that really matter to us the most. With that, I'm going to hand it back over to Jonah.

Great. Thank you, Wahid.

You're welcome.

And I will say you are 5 minutes early. So great job. All right. Well, with that, it's now my pleasure to introduce Kevin McDonnell, our Chief Financial Officer, who's going to put some numbers to the trends shaping our business that Wahid just discussed.

[ Let's get ] them too excited.

Take it away.

Good morning. Wahid laid out a bit of the vision, a little bit of where we've been. I'm just trying to put some financial context around that for everybody. The first slide here shows you our 6 business segments, which you're all very familiar with. But we try to look at it from a standpoint of what are the size of the markets we're looking at and kind of where do we stand in those markets. The top one is our core bread and butter for the last decade plus that Wahid talked about is this Small UAS business. That's about a $1 billion market. I'd say it's somewhat mature, but we are the dominant global leader in that market, and we're going to continue to grow in that market because we're going to be able to upgrade that installed base of over $2 billion of equipment over the last 10 years and come up with innovative new solutions and things that people can add on to those current products. So we're very much see it as a growth business, a little bit more mature market. The Medium UAS market is a mature large market. It's at least double, we think, of the Small UAS market. We're the disruptor. We're the new kid on the block. We're bringing our innovation and technology to that segment. We've made some great inroads with winning the Increment 1 of FTUAS. You'll hear more about that later from Gorik. So we see this as a great opportunity for us to penetrate what is already a very, very large market. The TMS segment, which we basically were the originators of that, Brett, in the back of the room, he'll talk about that later. We see this as a tremendously large market. It's a growing market. It's a changing market. It's taking the share away from other solutions for loitering munitions, but we see this growing very fast. We're both kind of a disruptor also in that market because we're trying to bring our solutions to the battlefield. And we see there's tremendous growth potential there for the TMS market. The HAPS market is really a longer-term play, very big. It's really based on our joint venture with our relationship with SoftBank and developing a telecom solution, but we're also working on some DoD solutions, which may actually bear fruit sooner. UGV was the acquired business. Not a very large market. We're making good inroads there, capitalizing on our U.S. presence. And then MacCready Works, which we don't talk about a lot because there's a lot of things they do we can't talk about, but we're very excited about the fact that there's large growth potential in the classified business segment, and we're making -- we're seeing some good innovation there. And that's really a place where we might see some new products in the near term coming out of there as part -- as the battlefield evolves to different regions. But the main part of the story, the real story is, if we look back to where we were at Investor Day 4 years ago to the day, our TAM, our available market has grown tremendously what we're addressing. So what are the long-term growth drivers. First and foremost is just with -- as Wahid laid out, some of the conflict in the Ukraine and these -- and the recognition around the world of threat is increasing global defense budgets. We all know about that. Second is, obviously, the increased demand for loitering munitions. Again, that market is growing fast, and we're going to capture more than our fair share of that. Third is, and I'll show you in a second, is there's a lot of large billion dollar plus programs that are on the horizon. I don't think AV has seen that many coming at them at once, and we really feel good about our position in most of those programs. Fourth is the international demand for our TMS and MUAS products. So TMS has obviously been a domestic type of product. We've announced that we can now sell to 20 countries. MUAS, we're going to take our global footprint and sell that product internationally. Traditionally, it's been more of a SOCOM [indiscernible] business, and we're going to try to make it more of an aircraft business globally. Fifth, as we mentioned earlier, the upgrades and replacements for the Small UAS business. Sixth is the growth of classified programs for MacCready Works business. And then seventh will be the long-term commercialization of HAPS for telecom and DoD applications. This chart just summarizes some of the larger $1 billion programs we see on the horizon. You'll see there's a number of them. You'll see there's a number of them in the TMS segment. So again, that's one reason we see we're very bullish on the TMS segment. But we also obviously have the MUAS segment where we have the future tactical. The FTUAS program and Small UAS has the next-generation DoD bids coming out in the next couple of years. So financially, what does that mean? We're not going to put out guidance, but I think we can put it in some context in terms of where we've been over the last 5 years. We've had 14% revenue growth. We've maintained fairly high R&D investment at 12% and achieved an average of 17% adjusted EBITDA. That's pretty much in line of where our guidance is for this year. And I think that's a very strong track record. And as Wahid alluded to, we want to even do better the next 5 years. And we do think on the revenue side, there's so much growth potential for us with all the large programs, the growth of the TMS products, it can really move the needle for us. But we will continue to maintain a high level of R&D investment. And we'll focus on that and hopefully achieve around the same EBITDA levels, but that won't be our primary focus. The primary focus will be to capture these markets. We've got tremendous opportunity and we need to make sure we're well positioned for that, and that's our primary focus over the next long term, 5 years or so. So we expect double -- continued double-digit organic growth, R&D investment and our adjusted EBITDA to be kind of in line with where we've been. With that, I'm turning it back to Jonah, and I'm probably way, way ahead now.

That might be a record. Thank you, Kevin. All right. Keeping us on track. It's my pleasure to introduce Gorik Hossepian, who will talk about the Medium UAS business and specifically, the Future Tactical UAS opportunity that's in front of us and some of the enabling technologies, including the Planck acquisition, which we completed about a month ago. Gorik, this is his 40th year in the aerospace and defense industry, and I can't believe he allowed me to say that. He managed [ Litton's ] Guidance and Control division for Northrop Grumman. He was a director of commercial satellite programs for Boeing. He led a P&L division of Honeywell in Los Angeles. He has worked on every major military and commercial transport airplane in service today, as I think Wahid alluded to earlier. He's testified in front of select congressional committees on matters of personnel nominations and clean energy technologies. And a point of pride for him is that he was the program manager for Honeywell's space station efforts and has over 1,000 pieces of hardware on the International Space Station. Lastly, he's an engineer from USC. And with all that said, now that he's sufficiently hyped up, Gorik Hossepian.

Thanks, Jonah. Good morning, everybody. Excuse my voice. I'm not contagious. I just have a cold that I have a tough time recovering from. Welcome to Petaluma. As you might guess, I'm particularly proud to have you guys all here. This is a facility we all take a lot of pride in. Just a couple of numbers before I get started. We have approximately a little more than 145,000 square feet of facility here in Petaluma. There are actually 3 buildings. The building you are in, the building across the street, you will see later on today, we'll tour you through that facility and show you how we actually manufacture our products and what the hardware actually looks like. And then we -- about 2 or 3 miles north of the road from here, we have a dedicated facility for the manufacturing of our engines for all of our aircraft. So all together, we have about 3 different buildings, roughly 145,000 square feet. We employ a little more than 250 employees. Half of them are on site here. Approximately half of them are field service representatives that live in different parts of the country by the nature of the work they do, but we deploy on rotations to various sites, operating aircraft and providing services, mostly for the U.S. Special Operations Command. Again, we're very proud that we had the lion's share of the business for the ISR contract for [indiscernible]. So with that said, I'm going to start the presentation by just first showing you a quick video, get everybody hyped up a little bit about this business. I'll talk a little bit more about what we do here, but I'm going to focus the rest of the presentation on a couple of subjects, one being the latest acquisition of Planck. But more importantly, I'm going to talk a little bit to you guys about the future of this business, where we think we're going to go and the excitement we feel about being selected for the FTUAS program, and I'll brief that and explain what that is. Let's see if I can get this right. [Presentation]

Okay. So before I dive into the FTUAS program, in particular, we built fundamentally a Group 2, a Group 3 aircraft. That might not mean a lot to everybody, but it's short term for larger airplanes that you can't hand launch, airplanes that are -- require something other than human being to launch. This business has been -- this area has been one of significant interest for AV to get into. I'd like to tell you that I was hired to do that job, figure out a way for AV to get into that piece of the business, and we've looked at a number of options to do that, including organic growth and organic development of the product. But ultimately, at the end of the day, the acquisition of Arcturus was the right decision for us and allowed us access, immediate access to this marketplace with a really unique product. When you see the airplane, you will recognize that's probably something you've never seen before when you see the actual hardware. It will give you a good feel for the scale. But we'd like to think that what we do in this company is really be a disruptor in this field and a hardware of choice. If you ask anybody here, what is it you want to accomplish in this company? We will tell you that within this product line, we want to be the best truck you can ever buy. And we take a particular point of pride in designing a product and delivering a product that serves that purpose. Our customers do not have to suffer from anything like the rest of our customers do from the problem of vendor lock. Our product is so versatile that to this day, we have integrated over 62 different payloads on this aircraft. And that's unheard of in this business, absolutely unheard of. So with that said, and the reason I explained that to you, with that said, I want to talk a little bit about how we believe that has impacted us in our ability to be in FTUAS. So FTUAS stands for Future Tactical UAS program. It is meant to replace the shadow fleets within the Brigade Combat Teams. And last count, there's a little more than 60 of them around, 66 to be exact. It's a major Program of Record. It's one that lots and lots of companies have eyed. We are probably the only outfit out there that has won this competition 3 different times, and we have to win it the fourth time. We won the original award for FTUAS back in 2018. We were the only company that got awarded 2 [indiscernible] as a result of that. We were subsequently the second [indiscernible] actually was delivering hardware to [indiscernible] division. We were then invited to what was known as the Rodeo along with all the other competitors. And we were clearly the hands-down winner. We were the only one who took a fleet of aircraft at Rodeo and brought the fleet back. Everybody else cracked their airplanes. And we actually flew in extremely poor weather where everybody else grounded themselves. Clearly, the winner of FTUAS Rodeo. We then subsequently responded to an Increment 1 RFP. And once again, single source award, we are the winner of that award. We just announced that about a month ago, we took a press release out about that about a month ago. I want to tell you that when -- by the time we've issued the press release and we announced the award, we were creating up the hardware and delivering the hardware to the U.S. Army. We were so confident about our ability to win that job, we built a hardware ahead of time and have delivered the hardware. I have a group of people here today at Huntsville trying to start -- starting the support and service business. So it's a major Program of Record for us. We're very much excited about being on it, and I'm going to explain to you a little bit about what that program entails. So what does the program entail? The actual replacement has a 3-phase approach. Increment 1 is the announcement we just made. Potentially, Increment 1 has a value a little north of $60 million because you could go as many as 8 Brigade Combat Teams. We've been awarded a single source for a system of 6 aircraft and 4 Ground Control Systems. As I mentioned, all of that has been delivered, and they will start undergoing testing and evaluation for about a 9-month period, planned 9-month period with the U.S. Army. And that's fundamentally driven to -- designed to help refine the requirements for what is known as Increment 2. The plan is to get Increment 1 aircraft in the hands of up to 7 Brigade Combat Teams. We're obviously prepared to support that and build the hardware for them. And you will see fundamentally the aircraft that the Army has been delivered. And that will be followed by an Increment 2. We expect Increment 2 to start soon, sometime in the next 6 to 9 months. In increment 2, the government will take a phased approach. They will bring along a number of vendors and use a gated process. One of them would be an evaluation of manufacturing capabilities, the next one would be a design review from the point of view of a preliminary design review and critical design review, then deliveries of prototype systems for the government to fly and compare with each other. So that Increment 2 will end in a prototype system delivery and evaluation by the government. And then that will be followed by what we call a final award. The government based on that evaluation will select who will be the recipient of the actual Program of Record for FTUAS. That is a major activity for us. It's a major go get for us. And it's a major program for us. That program represents over $1 billion worth of revenue, not just in hardware deliveries, but also in support and spares and services for the government. It has a very, very long tail. If you take a look at Shadow as it is today for its current provider, that's been a Program of Record for well over a dozen years, and it's been -- it's what they call a franchise program. For us, this is our ability to go after a real franchise program. And as I mentioned, we have already won this competition 3 different times, and we are confident we're going to win it the fourth time and be the Program of Record. Now from a competitive advantage point of view, one of the things that most people don't know about is our customers do, but most general public do not know about, is we fly this airplane every day in -- today, in 5 different sites, in a GPS-denied environment. Our aircraft -- weather permitting, our aircraft fly 30 hours a day at every site in a complete jammed environment. We take off, we execute the mission, we come back and land in a totally jammed environment. That is a capability that's unheard of and very, very hard to replicate by our competitors. Our aircraft manages to survive north of 14 hours carrying about 30 pounds of payload, with a range -- we advertise a range of 185 kilometers. But as recently, as a few weeks ago, we flew the airplane as far as 200 kilometers out, and we could have gone further, we just decided to bring the airplane back. We sit at a very interesting sweet spot between our ability to carry payload and endurance. One of you asked me last night, I'm sorry if I can't remember that about what was unique about the product, and I said that we need to figure out a way to operate at a sweet spot between a number of capabilities, range, endurance, the ability to carry payload, we find ourselves in that sweet spot. There are aircraft that fly further than ours. There are aircraft that can stay afloat longer than ours. And there are aircraft that can carry more payload than ours. But there is no such aircraft that can meet that combination of 14 hours, 30 pounds and the range of 185 kilometers in the business. That beast does not exist, except within the walls of this company. And again, last month, we enrolled over 115,000 hours in combat operations with these airplanes. As I mentioned, every site, weather permitting, flies 30 hours a day. So we rack up quite a number of hours on a daily basis. I think that count is now a little more than 120 hours, but triple digits, 6 digits in the number of hours in actual combat environments. Now just to enhance that capability and our competitive position, as Wahid mentioned, we engaged in the procurement of a company called Planck Aerosystems in San Diego. We mentioned that all the facilities we had, Wahid forgot to mention San Diego in the long list, so now we have a facility in San Diego. I'll brief you a little bit about the uniqueness of Planck. But with the acquisition of Planck, we acquired a very unique technology that we were already integrating in our products here for visual takeoff and landing of the aircraft in a complete denied environment, meaning our airplane no longer needs a GPS signal to acquire where it's going, where it's going to land and whether it's going to take-off or not. The autopilot is -- can be -- can operate that aircraft completely devoid of GPS during take-off or landing. And that's a major capability. The enemy's ability to damage airplane on take-off and landing is the real issue that we have to solve. And they bring to the table, in addition to that technology, some very unique autonomy capability that I will talk to you about. All right. So specifically, what did Planck bring to the table. They brought to the table a product, they brought to the table a technology and they brought to a table a capability. The technology being what product that we call the technology that we call OpTrack, it's the ability to actually visually identify and track targets. It's being used to even identify swimmers in the middle of the ocean. As you might guess, in the environment we operate and fight the fight these days, that's a capability that is highly in demand, being able to track -- identify and track an object in a cluttered environment. The technology they brought to the table for us, what I mentioned to you is the ability to visually take off on land. And what makes us particularly attractive to us is that this visual queuing of the system allows us to actually operate this aircraft from the pitching deck of a ship. It no longer needs a stable base for us to come and land. The system can identify if the landing zone is actually moving relative to the airplane, and that's what enables us to be able to go land on a pitching deck of a ship. And then it also filled for us a gap in our small UAS portfolio. The product that is fundamentally a tethered product that can be used for a variety of reasons, everything from communication nodes to actually a visual essentially, and it can stay up in the air as long as you have power supply to it through a tether. So a real complete fit for this organization. And in addition to providing key discriminators for our position on the FTUAS program. And just to show you what I mean by that technology, we're going to see a video, an actual video of a quadrotor using that visual queuing technology coming and landing on a ship. This is right off the coast of San Diego. As you might guess, we have a relatively simple time testing this equipment in San Diego. So where with us with -- it's acquired that visual Kona deck of a boat, you will see that it will come closer and closer to it. And at the end of the video, you will see the actual touchdown. There you go. You saw how much that boat operated and moved in the ocean. The system was able to compensate for it upon landing. Okay. Now this engine autonomy engine that allows us to land really makes this product ready for a maritime solution. We can't talk a lot about all the other things we're doing to marinize this airplane, but the ability to take off and land on a pitching deck is arguably the enabling requirement for being able to operate in maritime. And what that means is we now believe we have a product that has far greater potential applications than terrestrial applications and the ISR applications. We can operate on a ship from a ship to shore-based missions or a ship-to-ship based missions. We can integrate this within all U.S. Navy and naval decks. And as I mentioned, we can do automated surveillance and reconnaissance with our OpTrack. New autonomy capability that brings more than just there is an object there. But who that object is, what that object is and track it as a function of time. Now when you see this airplane today, I'd like you to sort of -- I'm going to show you a version of the airplane that is not again shown a lot in public. But this is a very capable platform. It's a platform that can carry 30 pounds of payload, and it's agnostic to what that payload does. It doesn't matter what I want to carry. If I want to put a camera on it, I'll put a camera on it, if you want me to carry a missile, will carry a missile, if you would like us to carry an EW payload, we carry EW payload. A typical mission we fly today is a combination of an ISR gimbal and an EW payload for UAS SOCOM. An application that is evolving very much very quickly for this product due to its capability, that sweet spot capability to be payload-agnostic is armed applications. And you will see a version of that today. And we have to date fired a Switchblade off of this aircraft. I'll show you a video of it. We just completed a design for a version of the airplane that can carry a Switchblade 600 mounted onto the belly. And as recently as about 2 months ago, we fired Hatchet, hatchets or laser-guided bombs built by Northrop Grumman. We installed 2 in the belly of this airplane inside the fuselage and tested it for the U.S. Navy. So the vehicle has proven its versatility for being able to come up in a armed solution. You can imagine how valuable that capability is today, especially in light of what's happening in Ukraine and what we expect to happen in the coming years, unfortunately, in other theaters of interest, especially in the South China Sea. And as a parting shot, I will show you a video that exists on our web page. So if you do a little bit of a search, you can see it. That's the 300 under the wing. [Presentation]

So you saw that capability. That's a valuable capability to a lot of our nation allies, and we will continue to develop that capability in a very short period of time. Thank you very much. With that, I'm going to pass it on to Jonah. And yes, I am old. Jonah was right.

Thank you, Gorik. I appreciate it. All right. So we've arrived at our first break. We're going to take about a 15-minute break. So let's meet back in this room at -- in 15, it's 9:55. So 15 minutes from now. And then we will take a facility tour with Gorik Hossepian now that you've had the background on the business and the product line. There are -- as I said before, there are restrooms around the corner, there's also a coffee and tea station. There's drinks and snacks over there, so please feel free to help yourself. Just note on the tour, you have to leave all your computers, iPads, phones, everything in this room. It will be safe and secure here. There's no pictures or videos allowed on the tour. And with that, let's take a break. Thank you. [Break]

All right, everybody. Welcome back. It's my pleasure now to introduce Trace Stevenson, our Vice President and General Manager of our Small Unmanned Aircraft Systems business. Trace has been with AV about 18 years. So he's almost halfway to catching Gorik. During his time at AV, he's really seen the company mature into the business it is today, and he's led a lot of that growth himself. Prior to leading the small UAS business, he was a Deputy General Manager for UAS. He also had responsibility for overseeing our strategic partnerships, including the HAPSMobile relationship. And so he's got very good at negotiating. And he also oversaw our integrations of our acquisitions. And before then, he's basically done just about everything there is to do within the company. So he's very seasoned, very experienced understands the company very well, understands the business very well, and he's going to take you through some of the innovations coming on his product line to match the upcoming expectations of our customers. With that, I'll turn it over to Trace.

So good morning, everyone. Thanks for the opportunity to talk about the small unmanned aircraft systems portion of our business. I'm very excited and honored to lead that business for AeroVironment. It's been the core of who we are today. And I hope it remains the core of who we are going forward. I know Brett and Gorik, are trying their best to overtake me and have the largest business in the company but game on. So until then, I'm going to continue to be proud as being the largest segment in the business and really talk to you about my strategy going forward and how we continue to be the leader in the space, in the Group 1 space and pivoting towards Group 2 as well. So we have -- I have an evolving portfolio within sUAS. We've got our legacy systems, Puma, Raven, Wasp, was that you're all familiar with. And really, that has positioned us as the leader in this space. And really, the reasons why we've been able to lead this space and maintain that leadership is because we really focus on reliability and rugged ability on the onset, making sure that our systems survive in the fight and the actual battlefield. A common user interface. So we talk a lot about a family of systems and interoperability. And so having all these systems on a common user interface so that our allies and our customers can switch from one platform to another and really not need any additional training. So providing different capabilities with that common interface and interoperability has been key for us and getting adoption into new platforms going forward. Hand launched. We created that very easy to launch and recover the aircraft. And then best-in-class Group 1 payloads. So we -- on the onset, there was nobody out in the market who could do payloads like we -- that could design group 1 payloads in the swap, size, weight and power constraints that we have for our systems. So we had to design them ourselves, and we continue to really focus in that area and bring new technology forward with it, and I'll talk a little bit about that. And then a common radio, digital data link radio, again, we designed our own data link, not because it was a market we chose to go after, but because we had to because there was nothing else in the space at the time that we needed it. And so we have to focus -- I have to focus on really keeping those systems relevant for our 55-plus countries that we're in. Updating that technology in those legacy systems so that they continue to be relevant in the peer versus peer fight. I'll talk a little bit about some of the new upgrades and capabilities that we recently released and how they apply to that current fight and at the same time, in parallel, develop our future family of electric hybrid VTOL systems. And really, that is to focus on everything we've done in our legacy systems, but then expand in the Group 2 space and really bring all the technologies across the company that we've been working on for several years and package them into a next-generation type of class of vehicle. So Wahid mentioned GPS denied autonomy, new payload technology. So taking all those things and putting it in our next-generation systems has to be VTOL. Our customers are requiring it. They're demanding it. I'll talk a little bit later on why. And it needs to be modular. We need to be able to incorporate all different types of payloads, all different types of radios. We need to be able to provide a platform that can integrate into the battlefield with other systems that our customers are utilizing so they can all work together, talk together and perform missions together. So what does this mean from a future product philosophy. I talked about next-generation hybrid electric VTOL. Really, we want to still remain best in class from an EO/IR capability, capitalizing on what we've done in the past. On our payloads, you'll see a next-generation payload that we just -- that we're developing for Raven out today on the site, and you'll see it side by side with the legacy or old generation payload and be able to see really the improved performance and capabilities that we're going to provide for that product. But you can envision us taking all that video chain, all those capabilities and embedding it in our next-generation systems. Gorik mentioned that endurance is always key. Endurance, range and payload capacity is always key, right? So as Gorik said for his class of vehicles, optimizing that, I have to do the same for the smaller class of vehicles. Wahid mentioned being able to operate in contested environments. The fight that's going on today, there's comms jamming, there's GPS jamming, being able to perform missions in that type of environment is critical. Wahid mentioned it's today, it's now and it's table stakes. So we have to keep that front and center. As I mentioned, VTOL, it's a must now. Customers are demanding it and requiring it. I'll talk about a little bit what we're doing on Puma to add that capability, but you can envision all our next-generation systems will have VTOL capability. And Wahid mentioned autonomy, big thrust and investment in autonomy. We've been hardware focused in the past years. I still remain hardware focused on next-generation systems, but we have to become technology focused as well and be able to have the capability to embed autonomy features as they get developed with an industry or inside of AeroVironment. So having a core, a modular core in the system to be able to upgrade or add autonomous features to the system as they become available is critical for the future of sUAS. As I mentioned, payload agnostic, radio agnostic, modularity, being able to incorporate anything that a customer wants to incorporate into this truck or these systems, multi-payload capability. When we talk about autonomy, I'll talk about autonomy coming up, but using those multiple payloads at the same time to perform missions, very portable. I'm in the small space. So the soldier has to be able to pack it out, they need to be able to get it to where they need to get it easily. Scalable architecture, so we can scale up or scale down so you can envision lower cost commercial solutions or larger systems. So having an architecture that we can easily scale that allows us, as Wahid mentioned before, to be agile and to provide new systems and capabilities quickly to the customers without having to redesign the whole entire system is really key going forward. And as I previously mentioned, being able to expand autonomy over time and not have to redesign or the systems but have them capable of incorporating new autonomy features as they become available. So why VTOL? Why are the customers asking for it. They're tired of launching. They're tired of hand launching. There's pluses and minuses. And you've seen the videos of my systems crashing on the ground and breaking apart. They're designed that way. They're rugged, but they're still -- you can still get damaged that way. So really not having to hand launch, being able to vertical takeoff and vertical land in tight spaces. If you're in between a building that hand launch does not work. So the customers are just demanding everything has to be VTOL going forward. We've gotten the message, and we're working on them. And we still need to maintain all weather capability so they can operate in the extreme conditions that our systems have in the past. On the autonomy side, so what's the focus -- I would say, the near-term focus and long-term focus in autonomy, as Wahid mentioned, is reduce the cognitive load on the soldier. The system needs to perform missions for the soldier autonomously versus a guy 6 hours, 3 hours depending upon the platform, looking at video all the time. We need the systems to go out, find the targets, notify the operators when they find the target so that the operator can act on that versus the operator having to stare to a video screen for 3 to 6 hours at a time. So preplanned mission execution, execution without comms, execution without GPS, target tracking and responses to emergencies. We talked about the acquisition that we did in AI and machine learning with our location in Manassas, Virginia, taking that technology that they're developing and being able to incorporate it in all our systems across the product portfolio is really key and strategically why we acquired that company. And then health monitoring. So the aircraft is smart enough to detect when it has a problem, notify the operator, allow the operator to make a decision and save the aircraft is a focus going forward. So really making it easy for our soldiers to perform their missions. And as we evolve over time and continue to invest in this, you can see long-term swarming systems working together with each other, sensor fusion. So multi-payloads on the same aircraft, talking with each other, being able to make informed decisions based on the capabilities that they're bringing forward. So lots of investment from my perspective going into this area going forward. Next, I'll talk about a couple of the latest -- 2 or 3 of the latest releases that we've done in existing systems. So I've got a video here on our next-generation Vapor that's called Vapor 55 MX. [Presentation]

So you'll see in that video kind of what I talked about modularity, being able to plug and play different radios, being able to plug and play different payloads. When we bought Pulse back in 2019, really, we filled a gap in having unmanned helicopter system, and we found a company who really had optimized performance in electric type helicopter. What we've done since then is invested in the next generation to really incorporate what AV understands what the customers need. So we're really excited about taking this to market now, lots of excitement in the customer community about this capability. And it's just -- it's been a long time coming. So lots of missions for this capability. It's a truck. It's all electric, but over an hour of endurance with up to 12 pounds of payload, multiple types of payloads at the same time. So typical missions, as you saw in the video, Expeditionary Scout, delivering different payloads, Mapping Inspection for the commercial applications, Maritime Patrol and Small Munition Firing. Gorik showed a video of Jump 20 firing a Switchblade 300 off of it. We've also fired Switchblade 300 off of the Vapor 55 as well. The other product that's close to release at the late stages of development is what we call Puma VTOL. It's an upgrade kit that you can add to any existing Puma system that you have out in the fleet. So the engineering team has done a sleek design there that basically you have these 2 booms, the yellow booms in the screen that basically insert between the left tip and the right wing tip, and now you can do a VTOL mission. So really, again, focused on a modular upgrade kit to give the customers what they've asked for, which is a VTOL capability comes in one case. And they can now perform a VTOL mission that they want or they can perform the hand launch mission as well. There's an Endurance set because of the drag that's added by adding the booms. So you get about 1.5 hours endurance versus the 2.5-hour endurance on the Puma 3. But you have the flexibility to choose between whichever mission you want to perform at the time with just a simple upgrade kit. So lots of interest in this capability. We've been demonstrating it to customers already, and I'm very excited to launch this to the market in the next -- in the coming months. And lastly, we just released about 2 weeks ago, what we call our Puma Visual Navigation System. So as Wahid mentioned earlier, we've been investing for a few years on this type of capability, focusing on the next fight peer versus peer. Anticipating that, that was going to be the next fight. We've been hearing about it, China, Russia and now we're in the middle of it. And timely enough, we're releasing this product capability to the market now and allows the user to perform a complete mission in GPS-denied operations. So if the system is being jammed, GPS, it will automatically switch to GPS to night operation during the mission and perform the mission without GPS. The way that it does it is through IR sensors. Using VIO or visual odometry, and we also have a laser range finder on the system as well. So periodically, you can ping the ground and detect the elevation that you're at and match that to the detach maps that are on the system. So it will correct its GPS. We're getting probably less than 1% drift on the system, but once you use the laser, you're back to zero. You may or may not want to use the laser depending upon whether it's a night operation, and you don't want the enemy to see the laser, but regardless without the laser you can still operate GPS-denied. We did focus on the hard part first here, which was being able to perform GPS-denied operations at night. So we started with the hard problem first, which was if we could do it at night, we know we can do it during the day. And so a lot of people out there are talking about GPS-denied and claiming they can do it. But can they really do it in the operating environment that it's needed to do it. And this system can, and we're excited about deploying it. And with that, I'll hand it back over to Jonah. Thanks, everyone. Appreciate it.

Great. Thank you, Trace. And I hope by now, you're starting to see some commonality in what customers are requesting and how AeroVironment is responding to those requests. You've seen VTOL. You have seen flexible payloads that are easy to install. You've seen flexible comms that are easy to accommodate. You've seen the term, trucks. You've heard the term trucks, right? These are platforms that can do a variety of missions with a variety of payloads, because that's what our customers are demanding and what our customers want, and you're seeing it across the board in our UAS systems and how we're responding. Now though, I'd like to introduce Brett Hush to talk about something a little bit different. We talked about systems that can fire Switchblades, but now we're going to talk about Switchblades specifically. Brett has been at AV about 12 years, which if you know the company is just a little bit longer than the TMS business has been around. He was the founding member of that business. He's led that business. But he comes from a great background in the aerospace and defense industry himself. He had a VP role at Teledyne for which he worked at for 9 years prior to coming at AeroVironment. He's also worked at a host of other aerospace and defense primes that I'm sure you would know by name. And with that, I want to bring Brett up. He's grown this business into multi-mission, multi missile -- with multi missile capabilities. And he's here to talk to you about what makes the Switchblade and what really differentiates us out there in the marketplace. Brett, come on up.

Thank you. Okay. Before I get started, the first thing I would like to address is the challenge that my colleague -- where is he hiding. He is hiding behind the -- he is hiding now, has put on the table for Gorik and I to become larger businesses than the small UAS. We fully accept your challenge. And to make it completely unfair, we're going to leverage every bit of technology, advancement and investments you're doing into our businesses as well. And that's just -- and that is part of our corporate strategy is these are not businesses that are run completely separate. They have a lot of synergy in the technologies, and you've heard about a number of them already, whether it be on radio, on sensors, on artificial intelligence, lightweight structures and so on and so on. So with that, let's jump into it. I'm very excited to be here. This has been kind of an unusual situation. It's my passion for the last 12 years. All I have done and all I think about is loitering munitions and how to bring that into the DoD and our close allies and make that a game-changing capability. And we've seen a lot of change over this timeframe. And we're at another turn in or inflection point in front of us as far as customer adoption. So I didn't get instructions, but I think I know how this -- okay, there we go. Okay. So a family of systems for tactical missile systems. On the far left-hand side is our Switchblade 300, which has really been our bread and butter for the last decade or more. We first fielded in about the 2010 timeframe with that system in very small quantities with special forces groups. And then in 2011, the U.S. Army did a military utility assessment in Afghanistan and determined that there was significant utility of that system and that they wanted some changes and that they would take that requirement over and try to establish a program of record. Since then, for the last decade, the U.S. Army has been the primary program office designated by DoD to procure the systems for all the other DoD users. So we've got all the special forces. We've got Marine Corps as well as regular army using the system. But the program office under PEO Missiles and Space and Redstone Arsenal has been our primary customer for that system over the last decade. And so a lot of robust work with them. We've built over 5,000 of the missiles over the last decade. And you've heard from the other presentations, the technology advancements that while we talk about, we've built 5,000 of them. We've been continuing to evolve and make the system better and better. And that's really one of the advantages we have in the marketplace as being the company that introduced Loitering Munitions into warfare is that we've had that feedback from users over the last decade that we continue to roll into the product evolution to make the tracker better, to make the user interface more intuitive and other features that we put into it. So traditionally, Switchblade 300 has been launched mostly from a single tube kind of like a mortar launch, so to speak, about a 21-inch tube in length, but we've also built a multipack, 6 pack that is in a fixed location and it can be launched remotely from the relative safety of additional cover or attack, a tactical operation center. And we are working with a number of industry partners to integrate it on to ground mobility vehicles. We've done some press releases on how we're integrating and doing work with General Dynamics on their platforms going forward. While the Army had intentions to move forward with a program of record, which they called LMAMS, Lethal Miniature Aerial Missiles. That never made it all the way to for a program record. While they've been continuing to buy in fairly good quantities every year from us under urgent needs that have come out of various cocomps, whether it be CENTCOM, AOR or AFRICOM. And of course, recently, what's going on in Europe. But there are additional programs of record that we are pursuing with the U.S. Marine Corps, which has announced they have a program called Organic Precision Fires-Light. We think we are an excellent candidate to meet those requirements and SOCOM has a similar program as well. So we see this, while this has been a robust business for us for the last decade, we see it just continuing. And then on top of the administration's change in export policy, which is more favorable to exporting Loitering Munitions to our allies. We believe that we can expand the export beyond the publicly announced close allies that's already been stated out there. Blackwing is a close derivative from a technology standpoint and from building the product is very similar to Switchblade 300, but it does not have a warhead. It's job in life is to be launched out of a U.S. nuclear sub while that submarine is submerged, and the tube goes up to the surface and then the UAV pops out of it and provides situation awareness to the sub operator, which allows them to know kind of what's going on beyond what periscope situation awareness would give them. And give them targeting information for organic weapon systems like a torpedo or provide targeting information back up through Satcom to another system like an F-18 strike group or something like that. So it's a really -- it's a great capability. Relatively low quantities compared to Switchblade 300, because of who it's used by. But we continue to have year after year on multiyear production rates for that system. And we envision there could be some evolution of that over time as well to weaponize it or add other types of effects into it. Switchblade 600 is our 300, I would like to call it our -- the big brother. When you think about a Switchblade 300, it's 21 inches is what the tube stands, which is probably about there and Switchblade 600 is over 60 inches in height. So while it has the same functionality and how it all started was some of our existing Switchblade 300 customers came to us and said, hey, I want all the same capabilities that Switchblade 300 has, but I want to be able to go way beyond that in duration and distance to attack targets. And I want to be anti armor capability, which Switchblade 300 was designed as antipersonnel and anti material, light material, like unarmored vehicles like stop an engine block or take out occupants inside an unarmored vehicle. So we developed Switchblade 600 for UAS SOCOM and a couple of the elements within UAS SOCOM are our current customers. That has transitioned over the last year, 1.5 years in production. So we're building those in the same factory that we've built the Switchblade 300s. We're also working and have announced put out some press releases that we're integrating Switchblade 600 onto a maritime asset for SOCOM onto a boat, which is a very challenging project, but very exciting as well being able to launch these types of things in various C states. And have a completely controllable and perform the mission. Jackal is our latest development, and this is all focused on an air launch, a Loitering Munition that can sprint and loiter. So that's a new concept for sure. The ability to be launched off a rotorcraft, helicopter, and be able to race out quickly to the target area much faster than our propeller driven systems. So we've teamed with one of our industry partners we've worked with for over a decade, Northrop Grumman. And we're integrating a turbo jet propulsion system into it. So it will sprint out to the target area very quickly. And then the wing will fully deploy changing the aerodynamics, the lift over drag ratio of the system, and you're able to maneuver and loiter in that area and have the same similar effects that we've had with Switchblade 300 and 600. So that's under a U.S. Army program that us and Northrop Grumman are one of the competitors in that. Some of that testing is ongoing right now of that system. Our objective there is to -- with Northrop to be one of the winners of that program, which is long-range precision munition for the U.S. Army. It comes under the same program office that has historically bought the Switchblade 300s and most recently is buying Switchblade 600s. So we've got good relationships. I think we understand the customers' needs and requirements. And I think we have a good shot at that. Now that will be a -- if we're successful, that will be a development program funded by the U.S. Army for the next 2 to 3 years. And then it is targeted to go on future vertical lift platforms and probably first go on to like in Apache aircraft. Okay. I have a video and just at the stage, this is an operational scenario with Switchblade 600s, showing how they can be used in the scenario to engage targets. And this is done in a cooperative engagement with a Puma that is identifying the targets and then providing that targeted information seamlessly to the Switchblade operators. [Presentation]

Okay that was exciting for capability. So probably a lot of people wonder what's unique, what's different about a loitering munition or missile versus other weapon systems. The U.S. and our allies have a lot of different munition and weapon systems out there. But the Switchblade Loitering Munition has a lot of unique capabilities, okay? And I want to go through a few of those. So the fact that it's very portable, whether it's the small one, which 3 of those can fit in about a medium-sized backpack for an operator and the ground control system is very portable to the Switchblade 600, but you wouldn't call it back-packable, but it's very portable. It doesn't require a dedicated truck like some other missile systems that have similar ranges. Kind of think about HIMARS and that's a fantastic capability, but it requires a dedicated truck and that's a target all the time. And there's only so many of those that might be on the battlefield. Switchblade 600 fits kind of in that same capability to be able to strike beyond your enemy firing on you and be able to do it in a way where you can maneuver very quickly and move away from that position, which would then become a threat. Both systems, the 300 and 600 are designed to be set up very quickly and to be able to launch. 300 can be used as troops that are on patrol are going somewhere, and they come into contact and the highest risk to our forces and our allies is that initial troops in contact. The ability to respond to that threat very, very quickly has made that a very successful product. So within 2 minutes, that can be launched and put effects up over the enemy. The systems are based on having a man in the loop or sometimes we'll refer to man on the loop. The operator doesn't manually fly the vehicles. They would preprogram way points similar to what we do with our small UAS, but the operators getting full motion video throughout that whole mission. The ability to be able to have situational awareness and make other decisions after the initial decision, which is launch. So traditional weapons where you're launching something with a fixed GPS location or a mortar or artillery, there's a decision to fire and then there's an effect. And that effect might be good or might be bad and things on the battlefield might have changed from the decision point to when it happened. With our Loitering Munitions, the operator is in that loop the whole time and has the ability to make a second decision based on what he or she sees in the situational awareness and to be able to maneuver to a safer attack angle, where maybe you'd get greater lethality and a lower chance of collateral damage. So that operator in the loop is a key differentiator of loitering munitions versus many other weapon systems. The precision strike, well, there's a lot of weapons that are precision strike, and you can get it by a GPS location, preprogrammed, it's going to hit a particular location. You could lase it with a laser designator, but then you would have to have some piece of equipment or person very close to the target that you're lasing it and then that weapon system would come into. What our loitering munitions do is they have a lot of technology built into them that gives them an optical tracker. So the operator from a far distance can be able to select targets. And then the onboard optical tracker takes that in with precision down to the target. And whether that target is stationary are moving. As you saw in the video, the car is racing away and in a lot of battle situations, you have fleeting targets. And you want to be able to address those. Imagine trying to address a target of fleeting target with mortar or artillery. Very hard to kind of predict and lead to get those. So having a weapon system that has the ability to track organically on the vehicle itself is a key differentiator. And then I mentioned couple of times low collateral damage. We have a patented capability of wave off and the ability of the operator to determine, hey, there's a target here, but I'm going to get my -- the most vulnerable part of that target might be coming around from the back side. It may be coming in at a shallow angle, it might be at a steep angle. With loitering munitions, you have, the operator has all that flexibility to do that. And that's unique, I would say, with loitering munitions. A little bit more detail, and I'm not going to read through the specs that are on the right-hand side. But Switchblade 300 kind of the key way to think about this is primarily the man-portable system. That's how it's been envisioned for most of the years. Initially as anti personnel, but it also has a anti-material capability as well to disable. Let's say, it's a truck or a convoy, the ability to disable those by going after the engine block or attack fuel vehicles or anything else like that. Very portable, very flexible, and we're also working to integrate it on to other platforms. This is one of those scenarios. And you'll see kind of from the bottom line, the portability when you take the missile and the ground control system that it can be carried by an individual soldier, sailor, airman, or marine and then the rapid engagement and then the full man in the loop or on the loop. And the ability for the onboard tracker to take over and has a lot of autonomy in engaging targets. This particular scenario, I think a lot of us were watched in the news many months ago, and we saw the Russian Convoy coming into Ukraine, and we're watching that and we're going. They don't have air superiority, so you can't like send in fighter or attack aircraft, loitering munitions is a perfect fit for those scenarios. We believe and we've seen a lot of customers in our community have now pressed the I believe button associated with loitering munitions make sense even in a peer-on-peer threat environment. And I think prior to this current conflict, there was still reluctance within DoD leadership to say, hey, this is a great weapon for the coin fight, for the counterinsurgency for what we've done in Afghanistan, Iraq, Syria, but I think views have changed dramatically with what has happened over the last 6 months. And we think we have a capability that supports it. Everybody is aware that the U.S. government has gifted foreign military assistance to Ukraine Switchblade 300s, and those have gone into theatre and are performing well. We have a capability that was shown in the video, which is if the operator also has a small UAS asset like our Puma AE or Puma LE, they can use that to find targets and that electronically transfer that target information to the Switchblade operator. So the Switchblade operator with this software package and look at his vehicle's video of the situational awareness, but also see the feed from the Puma that's being streamed to them and say, hey, I like that target. I'll accept that target, and electronically it gets transferred. So it makes the engagements higher probability, higher assurance that there's not an error, okay? And then the small UAS like the Puma, would sit there and do battle damage assessment afterwards to determine, is there another action required after the first Switchblade has launched. Switchblade 600 in spec sheets. I think the big difference here is for longer range, anti-armor. Of course, there's a lot of talk about anti-armor systems in the press and in the world today. This system carries the Javelin penetrating warhead. So Javelin has had a lot of success in the Ukraine fight. But it's limited by a line of sight target where the operator has to be able to see through an optics package, that line of sight target and engage it. And that's typically maxed out at about 4 kilometers. Switchblade 600 can go out to 90 kilometers. So way beyond the range of the Russian artillery and to be able to defeat the targets. So we don't think of Switchblade 300 or 600 as completely replacing other weapon systems. We think that there's an integral fit for various threats and various situations where these make a lot of sense. Okay. This graphic gives you an idea of the range advantage that a Switchblade 600 can give the user versus other weapon systems. And if you watch what's going on in the Ukraine today, and there about a 1,200-mile line of defense. And the Russians have a numerical superiority of artillery. And there's fairly limited HIMARS in other weapon systems that can strike beyond the range of the artillery, Switchblade 300s can be distributed across that battlefield very easily and change the outcome of those battles. So we're getting a lot of interest from customers, not only the U.S. DoD, the Ukraine government as well as the allies in the area. Kind of a busy chart, but the basic [CANUS] Switchblade 600, very similar to 300, as an operator can set up a single tube, which again is kind of like a motor -- motor shot, set up a ground control system. And then he has his tablet to be able to see the real-time video and select various options, how he wants the weapon system to engage targets. And that gets launched. And he can go with his standard GCS package. He can go off to 40 kilometers, or if he hands it off to a forward operator, they can go all the way out to 90 kilometers. The Northrop Grumman Jackal program that we talked about a little bit earlier. You'll see that's pretty much the graphic of it there. And you'll see the wing -- the main wing that's deployed, initially, when it's launched off the rail, it will be in line with the vehicle, and the turbo jet will be going at full speed, sprint in out to the target. And then we get in proximity of the target area, that wing will fully deploy, which would be perpendicular to the fuselage, giving it a lot more lift, slow it down and maneuverability. And that's all I have. Thank you all. Yes?

Jonah. Can we ask a question?

Yes.

What's the difference between Jackal and [indiscernible]?

Can you repeat the question?

Yes. What's the difference between Jackal and [indiscernible]?

One, the size of it and the features that I talked about of a loitering munition is, in general, cruise missile is getting a fixed position that's pre-programmed and it can waypoint navigate out to that target. In this case, there's still an operator in the loop who is getting that real-time video and can make further decisions about what target he wants to attack. We will be adding more and more economy into this that will help the user. So there's less decisions that they have to make. Does that answer your question?

Yes. So in principle, the [indiscernible] a person can modify this?

Yes, and much smaller in size. Okay. Yes. Very good. All right. Thank you.

Okay. And so we've made it all the way to lunch. Lunch should be here any minute. So we're going to take a little break. Hopefully, lunch will come in. We're going to get set up for the Q&A session, and you'll have a chance to ask any more questions of any of the speakers that have presented today, or frankly, of the rest of the team that's here. So let's take a break for now. We'll maybe take a 5- to 10-minute break, and hopefully lunch will be here in that time. [Break]

Why don't we get started here? All right. Well, this brings us to the Q&A portion of our agenda. Please feel free to raise your hand if you have a question, I'll pick on the folks, and I'll help give you out the questions to our panel here.

But this is one I'm sure you're looking forward to. We're looking forward to it as well. Austin.

All right. So what do you think about the CR in terms of the one that they just passed and going into mid-December? Do you -- are you confident that you will get actually done sort of in December or in early January when the new Congress starts? Or are you concerned about the situation where it drags on until March 16th [indiscernible]?

Wahid, do you want to take this one?

I'll take it, but I'm not sure if I'm the expert. I would say you guys know this better than we do because you understand it extremely well. My personal view is that it's likely that it's going to continue. Historically speaking, it's been not common that they've had a budget pass over the last several years, not just one or two, until the beginning of next calendar year. So -- but regardless of that, I think for AB, the implication for us is not going to be really significant because the [ indiscernible ] programs and the opportunities that we're tracking, they're continuing irrespective of the CR in general. New starts, the new work program records that are on the pipeline in the horizon that's further out for us, those would be somewhat effective, that it's more of a long term -- short term. So I don't consider that to be a big issue for us this fiscal year specifically.

Great. Kevin, do you want to add anything?

I would just add to that. I see it the same way as we're all forecasting our business with a set of assumptions. I would say my assumption right now is mid-March based on history, and that slowdown of some funds that we're planning on would happen prior to the start of our next fiscal year. So yes, we're -- from a TMS standpoint, we're planning that it's not going to happen until probably in the March time frame.

And just as a reminder, we're on April 30 end of fiscal year. Ken?

You gave an example of 10 different programs to potentially $1 billion plus. I mean a lot of detail on TUAS. Which of these others can potentially happen in the next 12 months? And sort of how does the timing look on those or probability and which ones we should be really focusing on as more of a near-term opportunity versus maybe just something that's out there a little further?

Why don't you take at the beginning of that and then you guys can fill the gap of the individual program?

So the beauty, I think that one of the beauty of our business is that we're pursuing several programs of those nature and size and different one of our product lines. The main reason why we highlighted FTUAS is because they're the most recent one that we made an announcement, there was an award, and we're a facility which you haven't been to before and acquainted to the product line. And it's really critical to the success of our MUAS because we've been focused on that. By no means does that mean that we don't have other programs that are in the other product lines that are of equivalent size or scale and probably even time-wise in a similar or even faster track as always. I would expect the programs that are from the TMS business. A, the ones that are already in the progress, the U.S. Marine Corp programs, the U.S. SOCOM programs that are going to continue to go at a similar pace, if not faster. I think the other branches of our services would pick up similar initiatives or programs most likely now that Switchblade is a validated capability, and we fielded it and there's some deployment in Ukraine, and there's also good data behind that. And then lastly, I would say also in our small UAS, there are several programs that Trace and his team in our small UAS were pursuing. They could be a little bit longer term in nature with its nonlegal UAB, such as our programs such as LRR. There's a program called LRR that we're looking forward to, long-range reconnaissance. But I think with it's really difficult for me to say which one is going to happen first versus the other. They're all moving at a similar pace, some more disciplined approach by the customers, as when they are going to do certain milestones, some of them, they're moving at a pace that they can to go fast enough. But I think we have opportunities in all the different product lines that we've got, in terms of potential programs and deployments at a similar sort of time scale. They're all going to happen not overnight, but there's progress milestones or sort of stages of those programs that are going to happen for the next -- this fiscal year, next fiscal year that will lead to a program record, maybe 1.5 years, 2 years. Anything you guys want to add?

Yes, I could comment on long-range reconnaissance. So just recently at the ABSI Pathfinder Conference, the PMUAS briefed their kind of timeline for that program of record. So assuming that the government holds their schedule, which we all know is questionable, we expect that competition or RFP to come out about the next GFY -- not this GFY, but the next GFY. So probably before the end of calendar year '23, we would expect to see an RP with the down select the falling calendar year in '24. That program is laid down over a 10-year period. So it starts off very slowly. So when we talk about a $1 billion program, it equates to that, but it's over a long extended period of time with yielding starting in the GFY '25 to '26 range. So it's got a long tail.

Brett, do you want to comment?

Yes, I'll start with just a comment while we're talking about DoD programs-of-record. The near-term demand signals that we're seeing are more associated with foreign military aid in Europe. But on the program record side, while we have a list, I think there's 5 of them that we highlighted, the U.S. Marine Corps is moving out faster than any of the other services relative to lower ammunitions. If you're tracking, the U.S. Marine Corps made a structural decision a few years ago eliminate their main battle tanks, the A1 [ arose ], removed the heavy motor systems and go to a lighter, faster fore-structure, leverage in lowering munitions. We think we're in a very good position for which we think the first one that will be picked up there is the organic precision fires light which are Switchblade 300 is one of the candidates for that. We're expecting the RFP to hit somewhere in the middle to late 2023. Okay. So a little less than a year from now, we expect to get CRT. I think we're in a good position with that.

[indiscernible]

Yes. So I would say one of the reasons we highlighted FTUAS is because that program is upon us. It's no longer an event in the future. It's being executed. The program has been very successful in obtaining the necessary funding. And in fact, all indications are that the conference committee will add to the budget line item request that the Army has turned in. For us, the timing of the second phase of FTUAS is kind of imminent. We think it will be January, February time frame. It will be dependent, obviously, on the budget approvals and whether the continuing resolution goes to March or not. But the other advantage we have is the service programs and our programs of record don't get impacted by CRS. Their funding is O&M funding. So it's much easier to continue those operations that were getting impacted. So we expect those to continue. But we're in the thick of things for FTUAS.

I think there was a good point Brett made as well, which is that these are large programs that we're tracking that give us strong traction within a particular branch of the military and then through the carryover to international allies who train with us and who, in a lot of cases, take the same solutions that we have before ourselves. And so while these are large programs that we're tracking, there's a lot of international business, there's a lot of domestic business that we weren't highlighting today, but it's still part of the plan for the company.

There's a significant amount of small UAS and TMS primarily and what we call nonprogrammatic acquisition funding dollars and projects, call it, opportunities that we track domestically, internationally. It's a very stable automotive, what I call, overall on franchises.

Program of records are very important to the business. They've been very helpful for allowing us to extend the SUAS franchise to over 50 countries and winning some of these programs, especially given the opportunity we have with international customers now could really open the sum of the same deals.

I just want to -- sorry, I add one more point to this comment to this topic is Brett mentioned about the quite a significant amount of international [indiscernible] for exports of Switchblade and -- to build the 2 [forms of variants]. Trace's business, our small UAS, very similar. We see a significant number of opportunities internationally from lots of different countries due to the fact that we've had a lot of success and then also a renewed interest for drones in general, especially our drones because they're the workhorse of our use project for the most part across the overall perception. So I would expect that to actually continue to gain momentum over the next several quarters to continue this year and next government fiscal year and even in our next fiscal year.

Thanks, Ken. Brian?

Yes. sorry. So I was cornering Trace last night over a quick beer, but trying to understand kind of near-term drivers for the business seem to be all sales to foreign militaries. Is that correct? That's where the big upside. I'm talking 1, 2, 3 quarters out.

For, I would say, for TMS, yes, but also a combination of domestic, too. So U.S. DoD has given up a lot of its own inventory, and backfilling that inventory Switchblade 300s and also not having enough Switchblade 600s, we believe is a near-term opportunity that is going to happen in the next one to three quarters for us.