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

Good morning, everyone. It's wonderful to see so many of you here in beautiful Albuquerque, New Mexico. Welcome to our Space and Directed Energy facility, where we've developed and built products such as the BADGER, Locust and laser communication terminals. Before we get started, please take a moment to review our safe harbor statement located on the screens to your left and right. As a reminder, this event is being webcast live and will be archived on our website under the Events and Presentations section. Wi-Fi passwords are located on the tables in front of you, and we ask that you please silence your phones at this time. In the event of an emergency, exits are located on your right, restrooms are located to your left at the back of the auditorium. As you can see, we have a full agenda for today. You'll gain perspective on our view of the overall defense industry and specifically the defense tech sector, learn more about both of our segments as well as take a deeper dive into our comprehensive software solution, AV_Halo. We are most excited, however, to showcase the products, solutions and opportunities in our Space and Directed Energy segment. Before diving into presentations, please enjoy a short video highlighting all the amazing products and solutions AV has to offer. [Presentation]

It's now my pleasure to introduce our Chairman, President and CEO, Wahid Nawabi, who has been integral reshaping the company's strategy by driving growth and profitability with leading-edge technologies and solutions in the defense technology sector.

Thank you, Denise. Welcome, everybody. I just wanted to, first of all, thank all of you. You're highly in demand. You've got very busy schedules. You manage a lot of money and a lot of folks retirements, et cetera. So the fact that you've taken the time to come here in Albuquerque, New Mexico to be with us is an honor. And our goal is to make this the most memorable sort of open house Investor Day in your career, if not at least for the year. So thank you for that. I also want to thank our team, Denise, there's a whole bunch of other folks within Mary's group and Albuquerque that has actually organized and put this together. We've tried to do this always at a shoestring budget. But as AV's culture, we try to punch above our weight. And so I think they've done a fantastic job. I want to thank Mary, your team and the rest of the team members here as well as Denise. With that, my piece is really short. I have an overunder bet with Kevin that I will stay within my 10-minute time line. The reason why it's short for me is because I just wanted to share with you 3 key messages or 4 key messages. Number one, this is a once-in-a-generational opportunity that AV is faced with. In my personal career of 35-plus years or so, there's only been one other time that I've been in a situation like this where all the stars are kind of lining up. And what is that lineup of stars that I'm referring to. Number one, U.S. and our allies have underinvested for several, several years, almost 1.5 decades to 2 decades. We were -- if you recall, during the first term of Obama was called sequestration. So there has been an underinvestment in defense in general. That has forced industry to consolidate into 7 major primes which nobody on earth really is totally satisfied with. You hear that every day on the news everywhere. You all know that, so I don't have to explain all that to you. There is an eminent set of threats going on globally. The world is not a safer place than it was a few months ago or a few years ago. There's all sorts of conflicts that are rising, and they're actively engaged in U.S. today and our allies around the world. The fight between U.S. and China is becoming more and more focused and sort of front and center in terms of the competition. And the other thing I want to mention is that the current administration, both houses of Congress both parties unanimously support investments in this area. And there's a very significant shift in mindsets of military leaders around the world about what the future wars and conflicts are going to look like. It's going to be a lot more autonomous systems on the edge of the battlefield connected together, integrated with autonomy and AI to achieve missions and basically to provide superiority for our war fighters. That's precisely how we've built our company over the last 1.5 decades. We have deliberately selected pieces and invested in areas to position us for that particular future. You could call that to some extent, lucky, but I truly believe in the definition of luck is when preparation meets opportunity or the other way around, opportunity meets preparation, right? I mean we've been actually working on this for a decade plus because we firmly believe that these robotic systems on the edge of the battlefield in all different domains from space to underwater and cyber, connected with AI and autonomy, all at large scale will make a much bigger part of the defense spend overall. Right now, you could argue it's probably 5%, 10%, if that, of the $1 trillion budget that the U.S. spends in the entire defense budget. It should easily triple, quadruple in dollars over the next 3 to 5 years. That's just -- you guys know this actually better than I do because you do this for a living. But that's my personal view that that's what's going on. And so will there be one winner? No. I believe there will be multiple winners in this endeavor. And the companies who are relevant that can answer the mail on those things that I mentioned, number one; two, have strong balance sheets and financial means to be able to actually scale and deliver, have done -- they have the proven ability to actually cross the chasm and go from prototypes to full rate production, has the scale to produce in volume. And that's a very challenging question because the definition of volume is debatable. Are we talking thousands, tens of thousands, hundreds of thousands or millions? And no one really knows exactly, including our customers. But in every category that they're spending money on, it's going to be orders of magnitude more in the next 3 to 5 years. And so the winners, the folks that are positioned and prepared and qualified the best that has those attributes and have systems that are relevant in the fights that is actually effective in the field and you have the ability to scale and produce those are probably going to have the highest chance of success and a larger share of the wallet of the spend. And I am proud to say that AV is one of those top companies, if not the top company in that list. And so that's fundamentally the message in this one slide that I wanted to provide to you guys. And the second slide, it sort of paints that picture even more. If you look at the large primes, the 7 large primes. Generally, their strong suit is experience. We've done this. We've done that before. We've built the biggest aircraft carrier or the F-35, et cetera, et cetera. And there's a lot to be proud of and to admit that that's -- there's a lot to that. I'm not the person who thinks that they don't matter. They do matter. They're reputable competitors. We've competed with them for decades. They do a lot of good for our defense industry and our military and our allies. And you can't just underestimate that. However, there is also a new vector, a new set of qualifications and attributes that are becoming more important. And that's related to innovation, agility, commerciality, being able to pivot and go at the speed that the U.S. DoD and our allies would like us. And that's what a lot of the VC-backed startups and Silicon Valley tech companies pride themselves on, okay? The message that I want to give you is that it's not either/or. You can't just be successful and good enough if you were either this or that. It's the combination of both that actually makes the best sense. Can you be successful with one or the other? Of course. You have a much, much higher chance of success and a much better position if you are great at both. And really, that is exactly what AV is the definition of our name is, what AV's track record is and what the recipe of the company has been and how we've been executing in the last decade plus. And so I feel very fortunate because in my career, this is probably the second time in my entire career, the first time was in the commercial world that such an opportunity has emerged and we face. And we've worked really hard on this. You'll see examples of that today. And we make sure that -- we'll make sure that you get -- we are able to communicate and demonstrate a lot of that to you today. My last slide is really related to the markets. How large are these markets and what are the size of this market? This is a new slide. We have not presented this slide before. It's because now with BlueHalo and old AeroVironment combined as one AV, we're now looking at very large markets and total addressable market sizes. So for example, in our offensive systems, that's about a $10 billion-plus market growing at a very rapid pace. Those are things such as Red Dragon you see here and Switchblade and Freedom Eagle-1, which is another product line that we're investing in. On uncrewed systems, these are non-lethal drones that eventually could also become lethal, but most of their missions are ISR, intelligence, EW, SIGINT, et cetera. And products in that category are such as Puma and P550s and Ravens, et cetera. That's another $15-plus billion market in the sweet spot of the market are the smaller systems that are attritable, they're low cost. They can do a lot of organic ISR capabilities for smaller forces. Ukraine is a perfect, perfect example of that. There's over 1,200 Puma's right now operating in Ukraine today. It represents a significant portion of the ISR capability of the entire country of Ukraine, but they're doing it with 1,200 or so Pumas, not with $50 million to $100 million F-16s or predators and reapers. And every time that they lose one of these, the economic equation works in favor of Ukraine because the missile used to destroy one of these or defeat one of these costs way more than the drone itself. And so that category of low-cost, prolific large volumes of ISR with uncrewed systems, which is Group 1, 2, 3 is going to be a massive market over the next 5 years. Other systems such as defensive systems, counter UAS, which you're going to hear a lot about today and also our innovation engine, which is MacCready Works and our advanced innovation within BlueHalo is also key markets we're playing in that is very large. You're going to hear a lot about that today as well. So overall, we're looking at about a $70 billion to $75 billion plus market TAM, honestly. And we can debate whether it's 65 or 85 or 70, but it's massively large compared to where we are as a company in size and where the market is headed. And these are also the areas that there's a lot of investments and growth and spending from not only U.S. but all of our allies. Last slide I will share with you is U.S. DoD and our allies priorities. If you look at the list and look at what we do and what things are we the leader in, it's almost like almost a perfect match. There's a few extra ones that the U.S. DoD is focused on other than this, but not too many more, okay? Precision Fires and loitering munition. There's products like Red Dragon and Switchblade or FE1, okay? Autonomous UAS. I mean you hear that every day from the Secretary of Defense, from the DepSecDef in every ally in the world and every country in the world essentially. Counter-UAS, I don't have to explain that to you, and you're going to hear a lot more about that today. Space technology, cybersecurity and advanced ammunition. So I mean, these are the things that we have purposely deliberately invested in as a company and we built our portfolio around. And so I think we're positioned. The key message here is given the backdrop of the markets, investments, the shift in the defense strategy and mindsets and given the priorities and focus areas of spend, we're positioned incredibly, incredibly well. I've been with the company for 15 years. We've had a lot of great years, but I genuinely believe that the better years are ahead of us. AV has never been positioned so well before to take advantage of this opportunity. A, they're large; B, there's a lot of focus on them; C, we're leading in these categories; and D, we're ready to scale and produce in volume. You'll see examples of it today, okay? So that's really what I've got. One of our very old investor -- old many long-term investors asked me a question last night. It was a very good question actually. It's a question that I asked myself a lot. And it was "Wahid, what are you most excited about?" So this is all great, and I'll give you the top 10 list. I had 7 last night, but it's actually top 10 that I looked at my notes. loitering munitions, the Switchblade family, one-way attack, the Red Dragon family. These are $1 billion franchises. Easily $1 billion franchises each. It should be. Shame on us if it didn't become that, literally. Our small UAS P550, the next-generation Group II UAS, the U.S. Army's program record alone is about $1 billion. That should be a $1 billion franchise just like the Ravens and the Puma. Our JUMP 20 medium UAS Group 3 UAS is a very, very critical sweet spot. We have the relevant platform that is performing and it's in the fight and we produce it and it's outperforming everything that's in the market. And it does missions that cost 10x more with larger platforms today, today. That should be $0.5 billion to $1 billion franchise for the company. Freedom Eagle-1, it's early. We got -- you saw the down select that we were 1 of the 2 that were down selected for the next-generation kinetic counter-UAS missile for Group 3 and [ P+ ]. That is a $1 billion franchise as we execute and progress through the development process. The next 18 months is critical. You're going to hear a lot about our RF counter UAS systems, radio frequency. These are our Titan and Titan-SV and Titan 4 products. We're our fourth-generation product. We're not making the first prototypes. We've delivered systems that's in the fight today in multiple continents, not just in the U.S. We're the leader in that. And you're going to hear some of that as well. Directed Energy solutions based on laser, which is a very big focus of today, and you're going to see some of that examples later today in the demo of it. We are on the cusp of that market taking off just like Switchblade was about 4 or 5 years ago. I expect that market to grow dramatically. SCAR and our BADGER space comms is really key. That's a $1 billion franchise. And the last 2, I would say, is laser communications. You're going to hear a lot about that, one program that we just won. And lastly, I would highlight the AV_Halo, our software suite of products. We've been in the software business for a long time, okay? We always use the terminology, software-defined hardware. What's happening is that the market is shifting, the customers are realizing they have to be able to buy software on its own. They're still not figured it out yet, our defense customers and our allies. But that will be a big piece. So we're going to start the next section with our Chief Technology Officer, Scott Bowman, who has an incredible background. This gentleman has been with us for about a decade. He has bachelors and masters in electrical and mechanical engineering. He's been in over 20 different patents that he's authored or co-authored with other inventors. And really is the brains behind the architecture of our AV_Halo software. And what we want to do is help you understand what this is because there is a tremendous amount of misinformation in the market as to what these pieces of software do for robotic systems and for the future of defense. And we're going to try to break it down for you as simple as we possibly can of what is it that we offer, why do we believe that this is important to integrating all these things and adding autonomy and AI to all these platforms and how that's going to deliver a lot of value to our customers. And so with that, I want to turn it over to Scott, so he can walk you through that.

All right. We got comms. We're really good at that, by the way. So we're good to hear on stage as well. I'm a walker and a talker, so I'm probably going to cruise on both sides of the stage here. I will start off by saying thank you, Wahid, heck of a presentation and setting the stage for what I'm going to talk to you next, which is about AV_Halo. Giving some background here, I took the job about 5 months ago, exciting time for me in my personal life, my professional life, but also because we were being merged with BlueHalo at that time. Super excited to come in, seeing the marriage of capabilities, the way that on the surface, they may not seem like they work together. On the surface, they may seem like they're not complementary. But once you dug in, you really start to think about how we fight. These systems are tremendously complementary to each other. And then I dug into the software and it was even more excited to see the marriage of the 2 companies coming together to provide a new software platform, as we announced a few weeks ago called AV_Halo. And what is AV_Halo? Like I said, it is a software platform that is founded on existing capabilities, right? We're not -- certainly, we're writing new software, but we're really underpinning it with existing software capabilities that we're deploying today. And the entire platform underpinned by the 5 key tenets that you see over here to the left. We want to make sure it's extensive, modular, open architecture, Built for edge dominance, and that's a big one. I get a lot of questions. I see C2 over here, what does that mean? And there's lots of people talking about C2, but we're highly focused on the edge and owning the edge as everything we do here today needs to work better like at that fight. And so this platform will allow us to get after that. And then finally, create this unified war fighting ecosystem. So again, taking all these and taking a survey across the company here over the last 5 months, piecing together these core pieces, finding the right interfaces to allow these things to start working together very quickly rather than measured in months rather than years to then be able to connect together all these systems that we just talked about in his top 10. Because this architecture is predicated on very mature technology, we find ourselves being able to control the entire fight. Control the entire mission from detect all the way through delivery. Probably one of the 2 most important parts of this ecosystem is that we're going in head first from an engineering top-down approach that we wanted to be modular and open architecture and interoperable, not only to be able to horizontally integrate our capabilities, but also vertically integrate them and include additional third-party capabilities that may need to round out certain effects, certain capabilities and being able to bring that into a unified warfighter ecosystem into this kind of common world model that we know where everything is and we can cause effect within our own systems and some of the others that we've adapted. I want to take a little time and drill down on 1 of the 7 services. So we have AV_Halo is a software platform. There are 7 services. The first one that we'll look at here is AV_Halo Command to kind of do a little bit of a deep dive here. What makes up Halo Command is a big part of that is our, we'll call back-end software. I'll try not to get too nerdy on you guys here. my engineering degrees are coming through, I can tell. But anyways, the core of the software allows us to adapt, which we've already done today in shipping hundreds and thousands of today through this core software that's pulling in our unmanned systems and now starting to pull on our counter-UAS systems and all the other systems that have been brought in from BlueHalo and allowing those systems to not only feed our 2 mission and tactical UIs, which we're going to talk a little bit about and how those kind of interact, but also feeding out into the broader C2 systems, Lattice, TAC and other BMSs. There's FAAD C2, JADC2. There's all kinds of different systems out there that we want to be able to adapt to, but we want to hold that. What I would like to say is the brigade capability at Battalion and below. So that kind of forward operating base in forward, beyond the wire, that's our space. On the mission UI side, that is kind of underpinned in our -- what was in Vision Halo. I think you'll see a little bit of that. Mary will talk about that, I think, in some of her slides later today, kind of underpinned in that technology where the -- and that is very much your kind of forward operating base that has an ability to kind of synthesize additional sensor systems and be able to and integrate with some of our counter-UAS systems and pass that data down to our tactical element, which has been built upon an acquisition that was done by AV a couple of years ago. With the Tomahawk Robotics acquisition and Kinesis now is able to bring in that data and pass data back and forth and allow a scalable control paradigm from your mission UI down through your tactical system where end users can be very mobile and be able to continue to operate that system when you're in the last mile of the fight, if the mission system or other BMS C2s up echelon become disconnected, that tactical element, which is very important these days. I think we all know in the fight of Ukraine, as soon as you turn on an RF emitter, you're a target. So you got to be on the move, and this is extremely important to be able to allow us to operate our systems on the move like that. So this is a busy chart. I get it. But what this is showing, first of all, is all 7 of the services, and I'll go through these each, but the ability to influence all of the different systems that we currently have in service as well as all the domains that we support. AV_Halo Cortex is our focus is on our intelligence engine and comes from a lot of the technology that we got with the BlueHalo acquisition. AV_Halo Command, we've already talked about. Halo Vision is more of our optical tracking aided target recognition business. We have a couple of different capabilities across both sides of the business and kind of consolidating that into a -- to drive more exclusive capability there. Instinct is our on-platform autonomy. Again, we have that on both sides of the business and bringing those together to make this one more capable autonomous system, as Wahid talked about, that's certainly the future. Being able to get down range without having any kind of RF emissions whatsoever and doing it intelligently and striking effectively is the future. Instinct will be certainly a large area that we're continuing to put emphasis. Mentor is another one. So Mentor is our synthetic testing and training environment, and I use that carefully because when I say testing, right, this whole thing is a software platform. There's a lot -- we have 40% of our engineering population is software engineers. In order to enable them and to drive efficiency in the way we develop, we need a test environment in order to go and test out some of these things before we put some of these systems down range and have issues, not that, that happens all the time, but every once in a while, it does. Mentor gives us an ability to have the synthetic test environment and test those things using that as well as since we can kind of train like we fight, this is how we test. This also becomes a product with more capabilities for war gaming and training for our customers. AV_Halo to Tech describes the RF, EW and human factors type detection capabilities. That technology stack and some of these other ones here, and you'll hear some of that later today, are able to not just run in their current systems, but because of the modular nature of AV_Halo and the way we're pushing this new architecture, those software pieces can start to be run in different systems. Our EW capabilities that were once only confined to a box are now running up in our aircraft, okay? Aircraft goes down range. aircraft is now as a spectrum sensor and has EW capability all of a sudden because we have this software capability that resided down on the ground side and now able to move it up in the air. Pinpoint, which I won't belabor too much, Mary has got some great talk points on this, so I'll leave that to her, is another very good example of our ability to physically point at objects at very large distances, long distances apart, but also being able to take that same piece of software and pull it all the way into our systems that might fly at 7,000 feet, and we want to accurately point something like that same software stack, that same capability is being pulled into both and driving efficiency and getting after faster delivery. What you're seeing here is basically being able to take pieces of the platform and coupling those together to be focused on the particular product at hand, meaning we don't have to have all these pieces for things to work. In this case, this will describe Locust. We'll see that a little bit more. There's only certain pieces that you need, and that's fine. Wahid mentioned before, because these are all not only interoperable themselves, but open architecture, we can sell at these layers as well. If we opt to go sell the software at those layers, we can do that as well. But you see here how these different pieces can interact with these other domains without requiring all the other pieces if the solution requires it. So this is -- since our software is very tactically focused, we found it prudent to study how our customers think about the -- solve their decision cycle. So this is known as an OODA Loop, observe, orient, decide and act. And so when we were laying this out, we made sure that within our own capability set, we were able to close this loop with our own capabilities. And yes, we can integrate other third parties, and that's great, but we want to make sure that we can do it with all the systems within our own capability and do that very iteratively to outiterate the enemy. In this particular use case -- in this particular example, you're seeing an SUAS, more of your traditional SUAS system that may fly out with the SIGINT payload kind of like I talked about before. He's able to locate something. Now you're able to kind of -- using command also put -- excuse me, through Cortex identify what that signal of interest may be and then -- and from there, be able to launch something like a Switchblade to kind of act upon it. So all of that can be now done within this AV_Halo ecosystem within the AV family of products. And kind of last slide here to get off the stage, just kind of another view of how you take our software-driven hardware pulling it all together into a coupling software with the electromechanical pieces of it to create a system like Locust. So all of the Locust system is being run by our AV_Halo platform. And I think for those that are able to make the tour today, you'll see that function today. And I'm not sure there's, I don't know, about 50 or so and being shipped today and more on the way. So with that, I'd like to introduce Trace Stevenson, President of our Autonomous Systems division. Trace brings more than 20 years of experience in aerospace and defense and was most recently the segment leader for AV's Autonomous Systems segment. Trace is responsible for all operations with Precision Strike and Counter-UAS, Uncrewed Systems and MacCready Works. Trace?

Thank you, Scott. Appreciate it. And very excited to be here. Good morning, everyone. It was a pleasure to meet and discuss with a lot of you last night. For those that didn't make it last night, hopefully, we'll have a time to chat today. I did see some new faces come in this morning. So anyway, welcome. As Scott mentioned, very excited about AV_Halo. It's really messaging to you all the capabilities that we've been developing for many years, right, combined with the BlueHalo team as well. So as you mentioned, this is continued investment, but capabilities that already exist in our products today and really putting all those puzzle pieces together. So very excited on that. I'll just quickly go over the new segment, Autonomous Systems, which I'm very excited to be part of. It's really broken into 3 groups. First group is Precision Strike and Defensive Systems. So that's made up of our family of loitering munitions, so Switchblade 300, Switchblade 600, Red Dragon and from the BlueHalo side, our counter-UAS, as Wahid mentioned, we're on our fourth generation of Titan. So the RF piece of counter-UAS falls within my segment. The Directed Energy piece falls within Trip's segment, and that's really because that's focused on space as well with the lasers. And so it made sense to position that within Trip's segment, but the collaboration is ongoing between the segments to ensure that we are the leader in counter-UAS going forward. Also, that consists of our electronic warfare. I'll show some of the products on the next chart, so you can give you an idea of what that is. And then our legacy on Uncrewed Systems, which I previously ran that segment, which now is underwater with the BlueHalo combination, we brought on a company in Postown, Pennsylvania that's focused on EOD type missions underwater, our ground robots, which is Stutkart, Germany, which is EOD missions on the ground. And then our legacy SUAS and our medium UAS JUMP 20 variants. On the MacCready side, really, that's focused on what's our next disruptive technology, right? How do we make sure that we're leading in the space 5 years now? How do we disrupt ourselves, right? We're constantly trying to figure out how to disrupt ourselves and disrupt the enemy and the adversaries that we're seeing and the data that we're getting back from theater real time on a daily basis. Pro forma for FY '25, just north of $1 billion. and had a great first quarter at $285 million. And again, as Wahid said before, talked about scalability and production. We're the only company that can say that we've delivered 42,000 platforms to date in this space. So the numbers are massive, and we hope to see those continue -- we expect those to continue to grow and scale even more rapidly. So just an overview of the product portfolio within the segment. And I'm proud to say that I don't know of any company that exists today other than AV that has a portfolio this large that addresses the key areas that Wahid mentioned that our Department of War is focused on and our allies are focused on. We are well positioned. And these are all products in production today. They're not prototypes. They're in production, and we're scaling in the areas to meet the demand for our customers and war fighters. And starting on the bottom is our -- again, RF counter UAS, the Titan IV. Wahid mentioned Freedom Eagle-1. We were down selected as 1, not 2 vendor. So we are the sole winner of the next-generation counter UAS missile. It's a gap that the military has today. They have to use very expensive missiles to shoot down Group 3s in ranges that they don't have capability today. And we competed against all the bigs and have won that program. It's a multibillion-dollar program. And it's really -- they're looking for somebody different, as Wahid said in his chart, that kind of meets that middle of the curve, right? C2 tracking and sensing, we talked about that. Scott talked about that electronic warfare. So we don't have any of those products here today. So you should be happy, your cell phones are safe. We're not stealing any of your text messages. But if you were in their facility, I would not take your cell phone inside. So you can imagine they're focused on targeted information through WiFi, through satellite, through all different means of communication to get our customers the information they need on specific target sets. Our UGVs, as I mentioned before, primarily EOD missions, MacCready works, again, next-generation products. Those will feed the other groups across the company going forward Our new uncrewed underwater Maritime, all our UAS systems. So significant number of UAS systems and more in development today. As P550 has launched and Wahid mentioned, we were -- we have been awarded contracts against the Army Long-Range Reconnaissance program of record, which is $1 billion-plus program. Our family of loitering munitions and one-way attack. And as Wahid mentioned, our Red Dragon that we launched in June at SOF WEEK and then our Group 3. And the most recent variant of that is the Jump20-X, which is really focused on maritime capability, both land and maritime. So the X stands for cross domain. This is kind of OV1. The thesis that we've had for years now is multi-robot -- several different layers of robotic systems working together to perform missions that not one of them can perform on their own. And so we are changing the way the defense looks at how they -- how these systems perform missions. And so you can see you've got UUVs, UAVs, HAPs, Switchblades, counter UAS, all working together on the battlefield to enable our war fighter to be successful in the missions that they need to do in a peer-on-peer environment. Manufacturing. We always hear a lot even from our customers, how much can you scale? Can you meet the demand? And the answer is yes. We're well positioned to scale double, triple, quadruple, quintuple in various product lines. And we are actually doing that in some of them today. We're leaning forward. We raised money so that we can invest properly to meet the demand of our customers in advance so that we are ready when they need the product, and we are at scale. And so we're looking at all these products working with our customers to determine how much we need to scale, how much we needed to invest, where we need to invest and where we need to scale. So you can see within the next 12 months, we have the capability to scale rapidly on various product lines within the portfolio. And we are located in multiple sites. You can see some of our manufacturing facilities there, but well positioned to have distributed manufacturing across the U.S. and in Europe. So major programs that we're going after. We are enabled by our innovative solutions where we invested the products we have available today. Our manufacturing capability to meet the demand and in major programs of record that the U.S. military has right in front of us that we are well positioned to capture or are in the process of capturing. We mentioned long-range reconnaissance. You've seen multiple awards that we've announced on that. The U.S. Marine Corps OPF, which is a Switchblade program of record, for the Marine Corps massive program, the U.S. Army Lasso, which is also a program of record that we are competing on with Switchblade. And then as we mentioned in our next-generation counter U.S. missile called Freedom Eagle-1, which we -- we were the sole down selected winner of that. And as Wahid mentioned before, the TAM, the TAM is massive. We're in a great position, we've invested in the right areas, and he said it's a perfect time for AV, where all the stars are lining up. We created the Switchblade market, massive market now. If you go to the defense shows, you'll see loitering munitions almost in every stand. We're the market leader, and we are -- and we've been in this market for years ahead of the competition. On our defensive systems, again, TITAN 4, 4th generation, right? We've been delivering. We've been incorporating AI autonomy and all the new software capabilities in the next-generation products to maintain our leading position in the market. Uncrewed systems, again, another market that we created, back in the '80s with the pointer. So we are in 55-plus countries with our uncrewed systems. I'd like to say we have an unfair advantage. We have feedback from our customers on a daily basis of where they want to go. And with the capital that we have available to invest, we're able to maintain that leading position. And then our MacCready Works, which is huge opportunities, looking at 4 or 5 years ahead of us, and they will generate disruptive products that will compete with us to keep us honest and ahead of our competition and maintain our position, which is really providing the best of the best for the war fighter. Okay. With that, I will introduce my partner, Trip Ferguson, it's a pleasure to work with him. He was the prior COO of BlueHalo. He's a veteran of the United States Marine Corps, so I'd like to thank him for his service. He actually flew Ravens in Fallujah. So he's known AV for a long time, and it's really an honor for me to partner with him. He lives -- he's got an economics degree and an MBA and it currently resides in Huntsville, Alabama. But again, it's been a great opportunity to spend time with them, and I really appreciate the partnership that we have together. So thank you, Trip.

Thanks, Trace. Awesome. Good morning, everyone. Welcome to Albuquerque. This is a huge moment for me personally. I think Mary shares the same. The team here in Albuquerque has worked so hard for years to reach a moment like today. And so you being here means everything to us. As I think about where we're going. I really want to start about why we do what we do. I get asked all the time, normally in virtual calls and not in person like what's the secret sauce? What happened? How have you been successful? And it truly does start with our people and our focus on mission. We tell everyone, we don't make toasters. We don't sell insurance. Both are vitally important. But what we do is really, really important. And I live that experience. A little part of -- a little bit more of the story that Trace didn't share. In 2006, I was part of the evacuation of Lebanon. During the Israeli-Hezbollah conflict. And when I came back from that deployment, they actually sent me to a little company called AeroVironment. And I got to visit with some folks. And it's just fascinating to see where we've come. And it is proven, it is combat worthy. So my part of kind of informing you is to prepare you for what Mary is going to share. Mary is going to talk about a ton of technical marvels that you're going to see today. But let me just start with what is in the organization that I'm responsible for, who are my key partners and what does that mean? And where is it going? So start with Mary Clum, who's sitting here today. She is responsible for our space and Directed Energy Mission Systems organization, primarily focused here in Albuquerque, but she also has locations across the country. Jonathan Jones runs our Cyber and Mission Solutions organization. A lot of folks say, hey, Trip, do you all do services? And I go, not really. We provide technical solutions, solve really hard problems for our customers. We develop exquisite systems, specifically within the cyber world, think IC as well as for folks like the Air Force Research Lab. We are doing cutting-edge work. And I can't wait in the upcoming months to share some of the neat things we're doing, I think you'll be really, really intrigued. New addressable markets, we haven't had a chance to talk about. The team here in Albuquerque operates out of 3 buildings. The building you're in today is where we actually build our BADGER product for the SCAR program. You're going to be able to put your hands on an actual BADGER today. So that will really help you understand what we've been talking about, what is the maturity what is the technical risk. We're going to solve that for you today. And the building in between us and the main road in the middle is our Space Technologies facility. Think of things like our recent announcement of laser com. You're actually going to get to go into the lab and see what a laser com terminal looks like and what it means. And you're actually going to get to meet the engineers who develop that. And then we're going to go to our Directed Energy facility, and you're going to see where we integrate and what that means. And then for those, hopefully, you're coming with me, we'll get a great afternoon in the desert. Someone's going to get to go in a Stryker and actually push the button and take down a drone. So I don't know who wants to do that. There's been a couple of takers already. We can trade bourbon for that later. But it's awesome. And I guess the key takeaway, this isn't a PowerPoint slide anymore. This isn't a dream. This is a reality and it's combat proven. And we now are becoming a leader, and we have a right to win. And hopefully, you leave today understanding that. A couple of more key takeaways. Our team is deep with talent and experience, decades of expertise. We are loaded with clearances, which give us access, which is very important as we look at new addressable markets when you think about things that aren't in the normal budget, okay? And then we have a lot of PhDs. We have brilliant team members. But most importantly, AV nation and what happens here, like we have the right mindset, everyone here wants to hug a cactus every day. They're all in. They want to do great things. And I've ever been a faith and Mary's team and the folks are going to talk to you. So I'm really humbled and thankful to be here. When you think about our products, we talk a lot about all these different things in the space domain, right, Directed Energy. I just want to take a minute and talk about what is in Cyber and Mission Solutions and specifically why that's important. So very few companies have access to customers. Very few companies have the ability to listen. Our leaders that are on site, whether at Kirtland Air Force Base, Wright-Patt, running the watch floor for [ Arsent at Shell Air Force Base ]. They hear things and they learn things. We are very well connected with our customers. That allows a faster feedback loop and allows us to answer their biggest problems. And I just want you to leave with that. And if you have questions today, please come ask me about that, but we really operate on the high end. I'm really excited about growth in the IC. We're starting to see some things really come back post [ OS ] which is very exciting. And we are uniquely positioned through certain contract vehicles to be a very high value when you think left of launch in Golden Dome. So I personally am excited about that. When you think about our OV1 you can almost close your eyes and think about Golden Dome. And when I think about that, we are uniquely positioned for backhaul communications, which will be critical for anything we do in the next major conflict. What happens left to launch. We are uniquely positioned, and Wahid has already shared about our partnership with SNC, how we think about the near fight, the ability to field products to protect critical bases and infrastructure. I'll talk more about it, but whether it's with our directed energy products, it's with our Titan products, it's with Freedom Eagle, our ability to understand the need, resource that need and deliver is really unparalleled right now. And I would love to be able to kind of talk more about some of those on our tour today. I am really excited about our access within Cyber and Mission Solutions. I wish everyone in this room had clearances and we were in a secure room. Because I could tell you so much more. But I really feel like we are making a difference. And I have 3 kids. I want them to continue to have the American dream like I've had and it's essential that those areas are successful, and we are doing very important things. When you think about our footprint, we believe in a decentralized footprint aligned to customers provides agility and the ability to deliver. Others do not. What I can tell you is that our customers have access to our facilities and our leaders on a daily basis. What does that really mean? That allows you to have decision velocity. It's one of our core values and what does that mean? You can have speed with direction. We're not waiting and sending e-mails. We get the good news and the bad news together, and we're able to make decisions. But when you look at the footprint, you can see we're nationwide now, we are facilitized and we use the mantra of being prepared. We were always preparing to be busier, and we've already done that. So we're prepared for the growth to come. When you think of SNC, why did we do that? There are very few companies that have the mindset of AV and SNC is very uniquely qualified to meet the speed at which we make decisions. I would say they also have complementary products and services. Together, we can have a near-term offering that is meaningful and available today. And that's a key takeaway, I think everyone should leave with. And we have a blueprint that is available that says exactly what we can do and exactly we can provide, and we actually have the funds to go do those things. And I'm really excited about that. So I don't know who all in here has heard me speak before on some of these online calls, virtual calls, but I've tried to give some data points of what I thought would happen in the first 90 days. And a lot of folks have had just a lot of questions of like, hey, will the heritage BlueHalo team pull through. And I feel really confident today to say that we are. We've seen that with recent awards. We've seen that with additional BADGERS. We're seeing that with large advanced solutions contracts that are flowing through. I'd always try to talk about laser comm and how excited I am and what that means. It is landmark. It is very exciting. And we're going to show you today why we believe it's so exciting and why we believe it is the future. Because when you think of Golden Dome and what happens the 15 minutes before the next major conflict, you're going to have to communicate with large bandwidth across long distances, right, in a very unique environment when everything else is jammed and this capability is there. And then today, we'll decide who gets to push the button, but having a limitless magazine with the directed energy weapon system is so important, right? It is not affordable to continue to shoot high-priced interceptors at relatively low-cost drones. The math never works. And when you see this capability and you understand it, it's an aha moment. This is going from the flip phone to an iPhone, right? Like the iPhone 17 Pro. It is totally different. It gives you so many options. And what makes our team unique is our system works. It's been for deployed. But most importantly, it is modular and it is ruggedized. And so we're going to walk you through the key control points, but we're well prepared to serve both the lower kilowatt range, which is very affordable as well as scale up into the 150-kilowatt and higher if needed. I think the math will take our customers where they need to go, right, based off the total layered approach, but we are the most prepared company on the planet to provide directed energy capability today, and you're going to see it firsthand. So I just want to say thank you again. One of my key partners in life is Mary. And I just want to give you a little bit of background on her and why she is wonderful. Mary brings a unique skill set that has positioned this team for success. Mary was a small business owner. She's actually sold a business. She's running ESOP, She's also run mid- and large companies in the defense industry. Mary was named Space executive of Washington Zach last December. But she is a great people leader. I think you averaged about 3% attrition here in Albuquerque. So the data supports everything I'm saying. But you will not find anyone on the planet that cares more about what we do and why we do it. and there's no one more qualified to run our organization than Mary. So Mary, welcome.

Thank you, Trip. All right. Well, thanks, Trip. Before we get started and dive into the 4 product lines of Space and Directed Energy. I want to start with our legacy. So our legacy started back in the late 1970s. When we invented the sensor, it's called the Angular Rate Sensor or ARS1. It was designed to measure jitter from space. But think about that as the 1970s, how many satellites were in orbit at that time. Anybody? Only 10 to 15 satellites on orbit, we were already building space qualified technology. So today, the U.S. military flies hundreds of these satellites. And at AV, we're still building this Angular Rate Sensor. We're on Variant 16. As you can see here, it's smaller. It's actually more powerful and the same customers from the 1970s are still coming back to us. In addition, customers from other military, national security, civil, commercial and international markets are buying this sensor and why I could measure up 40 nano radians of jitter. What is 40 nano radians of jitter? Well, I need your help to answer that question. So in the audience, raise your hand if you like data and analytics. Okay. I thought that was loaded. This side is paying more attention because I figured all of you would like data analytics. How many people like to travel and you'd like adventure? Okay. Right here. What's your name? Tyler, where are you from? New York. Tyler from New York. Well, Tyler, you said you liked adventure, you're going to help me today. Congratulations. You've been promoted, you're an astronaut. Are you ready? You're an astronaut and you're going to go to the international space station. It's only a 460-kilometer flight but don't worry, you're not a test engineer. This isn't one of those flights. Remember, we've been building this sensor for over 40 years. And you went to the International Space Station and you know you have a lot of your time on your hands up there sometimes. And Tyler, you were a little nodding. You snuck in your phone with a selfie stick. And on the International Association, you remembered, oh, the Angular Rate Sensor is there. And you put that on your selfie stick and your phone because as you were board, you're sitting by the window, we've all seen that picture, right, from the International Space Station of Earth. And Tyler was like, I've got to have that selfie with earth behind me. But for 40 nano radians of jitter about pointing accuracy. Now bear with me, because I don't know how many people have the iPhone 40 yet. The limiting factor in this story is the optics aren't there, but our jitter control is. So Tyler, you have this Angular Rate Sensor on your selfie stick and the phone. And we all know AV is an autonomy company. So the angular rate sensor will autonomously position the phone you've decided you want to take the picture, white when you're going over your house, your apartment in New York City. And it autonomously goes -- how do you pose for selfie? Because my kids say, I don't know how to do it. Okay. So here's Tyler, who's posing. It turns on a green light autonomously. It takes my picture, click. Okay, Tyler, you got that picture. And in the back, 40 nano radians of jitter, you -- what do you do when you take a selfie, you pull it up and you zoom in and say, do I look good. But right in the center of the picture, you realize, oh my gosh, that's my house. And what's that shiny dot right in the center. That shiny dot was actually a quarter you accidentally left on the roof at a party. You had that's 40 nano radian of jjitter that we can measure with an Angular Rate Sensor. From the international space station all the way to Tyler's rooftop balcony, he can see that quarter. That's the power of our enabling technology and that enabling technology is so critical, customers from the 1970s are still coming back to us, and that's a competitive advantage that feeds 2 of our product lines. In fact, it feeds the space-grade electronics and directed energy product lines. And why is that significant? Well, Wahid presented the total addressable market over 5 years and just between those 2 product lines, that represents a $20 billion market. So at AV, we very strategic about our growth. And we've moved from these components up to payloads like the laser communication terminal shown right here, all the way to large mission systems. So I want to introduce you to the 4 product areas. On the very left is our BADGER. The BADGER is providing RF satcom for global satellite communications. The second area is Space Grade Electronics. This is power controls, command and data handling systems, fast steering mirrors and the laser communications. The third area is our Panther product line. This provides telemetry tracking for missiles and hypersonics. And on the very last is Locust. It's our product family of directed energy, where we build laser weapon systems. And although we don't have enough time today, you'll see at the very bottom, each one of these product lines are family of systems. And so at AV, we provide all domain dominance. Let me give you an example of how important that is. Panther. I'm going to pick on Panther here, says at the bottom, we have a ground station, an airborne payload, a maritime station. Actually, right now, we're also working on a space-based payload. The importance of Panther is it provides telemetry for missiles and hypersonics. And I don't know about you, I've been thinking a lot about Golden Dome. And I have to ask, is the U.S. ready to test salvos and missiles and hypersonics more times a year than what I can count on my hand. No, we're not. That is the power of Panther and why we need to provide a distributed architecture that's proliferated with all of [indiscernible] domains, and it's the domains where the demand is accelerating. So our legacy, it's all about [indiscernible]. Our people have provided over 260 systems on orbit. It's proven performance in the harshest environments. We've delivered laser weapon systems with over 23,000 operational hours. Those are real missions, not demos. And over 50% of our staff in Space and Directed Energy our software and specialty engineers. We are embedding adaptability and resilience in each system we build. Those fundamentals are in place with our deliberate growth based on our heritage our operational execution record and our talent density. AV has the foundation to grow with confidence. So Trace and Trip talked about AV's expertise in manufacturing and building capacity, scaling is also embedded in everything we do. And it starts far before manufacturing. It's in our product planning, architecture, design and our expertise in delivering operational prototypes based on our heritage of execution. Wahid talked about that, the prototype versus production. 10% in the challenges in the prototype, 90% is production. He's shaking his head. I agree with you, Wahid. Production is where the supply chain is tested. Tolerances are stretched and integrations are unforgiving. That's why we don't just design for performance. We design for scale, reliability and repeatability. We don't just meet the customer needs, we anticipate and deliver on their wants, building a long-term mission advantage. So let's talk about what does that really mean? And this is a real on-orbit example of this time. On a recent mission, are -- we were for an imagery satellite. The mission was to deliver a fully autonomous sensor suite. We provided the payload, the image quality, it needed in low-earth orbit. The high quality of images meant the tactical mission was persistent battle space awareness. And the system reached Orbit and a partner's hardware sensor failed. That failed the customer need didn't it still gives me goosebumps today. That was not a good day. Traditionally, missions are lost, sunk cost over years of design and investments, but AV being autonomous, our autonomous architecture provided the mission needed and want it, and that was to succeed. Our architecture allowed the customer to actually reprogram the sensor on orbit. And after it reprogrammed on orbit, it worked and images were received and it's still operating today. And today, on the demo on the tour of the facility, it's the facility right in the middle, you will see we are building that same autonomous sensor suite for proliferated low-earth orbit architecture. That's how we build resilience and adaptability in all our designs with game-changing technology. And when Scott talked about AV_Halo, that's the power of AV_Halo. It's a unified autonomy and resilience layer. And AV_Halo has already been proven on orbit. So we're not just building concepts, but we're building operationally ready systems for today. The picture on the top that's one of these laser communication terminals. That is designed to move massive amounts of data securely across space. On the bottom is our Directed Energy system. These are 4 systems that were built and delivered and operational in the theater already. We're scaling embedding discipline, not just the factory growth. we minimize costly errors. We anticipate mission needs, and we deliver resilience. That's from those on-orbit saves, laser communication networks, DE weapons and theater, we are ready to scale for all domain dominance. So the threat landscape. I know you guys know these stories. I want to bring them a little bit to home in our AV home. The first one is the spiderweb concept, where the adversaries are deploying multi-domain asymmetric spiderweb, that spiderweb overlaps jamming, dazzling, laser effects, lethal effects, the problem. Our current systems in the military today, they're siloed, they're sequential makes defense and offensive systems vulnerable, an AV solution that we have that you'll see today, directed energy. It affects in seconds. It's scalable. It's nonkinetic layer defense. It's where you need localized defense and offensive effects. So we've already proven it in the field, and we defeated drones and adapt it to multiple platform configurations. And so what does that mean? In an offensive situation, I'm on a mobile platform. I want to maneuver and you're going to move maneuver the laser communication -- the laser weapon. And in an offense, you're going to have that be stationary fixed to protect the base. That's what we've done. We've completed all low rate production. We feel it. We've manufactured at scale. Now we're ready for that scaling. In fact, we're positioned for adoption as the foundational capability as laid out in the Army's 2030 plan. This is where the Army has planned their force design and directed energy is planned to be integral in military's laser defense system for counter-UAS. The second example, Space Systems and how China has been doing orbital maneuvers. This was reported in July of this year. Chinese satellites were conducting close proximity operations. So they were flying very close together like an Infinity symbol. What does that really mean? What was that threat? It blurs a little bit line between peaceful and hostile and it's driving new requirements for us right now. It's driving the need for protective layers to include resilient communications. The solution, you need AV's laser communication and optical payload high-precision pointing, resilient, secure links and it provides situational awareness. We have already fielded modules built for harsh environments. We know those. Those are environments like really tough radiation, thermal stability control. And we have the capability right here in our facilities to provide not only the functional but the environmental rigor these threats impose. So it's our heritage and the readiness. It means we're ready to scale for contested space. So our growth envelope. We do this over 5 years. We conduct long-range planning. We're doing that right now. And our total addressable market in Space and Directed Energy is across 4 main product lines. We're very confident as it's grounded in the heritage and our programs of record backlog and those urgent mission needs. So laser communications, let's start with this unit right here. It has a very high 24% CAGR and like that. Why? Because we're at the inflection point where this is needed. That's why that threat is there. And we've just announced our new program earlier this month. It's a program award totaling $240 million over 3.5 years. That's a strong program with a strong requirement for a follow-on. This system, again, enables those large data sets to transfer at scale. Directed Energy, the next line, with an 8% CAGR, it's proven in the field. Successful live threats have been defeated and we're transitioning to scaled manufacturing. We offer this modular architecture you're going to see today, and it's on any platform. You pick a platform, we'll put it on that platform. The Army is asking us today how many more can you build and we're ready to answer that. RF satcom and has a 7% CAGR. This provides worldwide global coverage. It's strong multiyear backlog is $1.7 billion, say that some visibility through long-term contracts. Space electronics and sensors back to our legacy, I'm going to bring back the 1970s, we're going to make this into shirts. This is our core avionics, our power systems and sensors for space missions. This is really embedded in all the current and next-generation constellations with a really broad customer base, the largest TAM at $13 billion and a 9% CAGR over 5 years. Those are 4 domains with heritage, customer intimacy and proven technology, a backlog visibility that supports our near-term certainty and a 5-year growth that drives long term stability across a family of systems. So let's start with our first technology you're going to see in Albuquerque, our BADGER. Here's an example of BADGER right here. We're going to highlight a program win. That's the Satellite Control Augmentation Resource program, or SCAR. It's an awarded value of $1.7 billion, extending all the way through '23 -- 2030. And right now, you can see the current challenge. You can see that on the top right of the screen. Traditionally, RF communication is one traditional parabolic dish talking to one satellite. That's what we currently are -- how we're operating and talking to over hundreds of satellites. That current system only has about a 75% utilization. Do you know what that means when a critical technology only has 75% utilization, it means that missions are skipped, maintenance is often deferred, and it's a real bottleneck. To me, that's risk. Our SCAR solution actually changes all of that. And it's in very high demand with the space force. And why is that? Because you all know satellites have been launching, and it's been tripling every year since 2012. But at the heart of our SCAR solution is the BADGER. That one BADGER, it's built on AV's IP. They're Phase array tiles that we call multi-band software antennas. They are actually 160 antennas in one of those BADGERS that covers the entire geosecreness orbit. You can see that right here, this first unit configuration. But what's really neat about BADGER is it's very flexible. So you can change that configuration. Can you see that second example where it's in a circle, that's covering over 200 contacts in LEO and MEO. So what does that really mean? This system is not only reconfigurable with the same hardware. You just need a forklift to move that. It's transportable. So you surge where it's needed and its resilience in contested environments. But what makes me really proud of winning SCAR was that we beat every large prime. But what set us apart -- it's what Wahid he told you. It was not size. It's the way we work. We put our entire team shoulder to shoulder with the customer. We listen, we adapt and we designed with them. So SCAR's a program locked in, in a very high barrier to entry market. but our team did it. And what's our customer saying, I'm going to quote him. And I want to pause on this a little bit because it emphasizes that demand and urgency that the space force has. So in June of 2025, Breaking defense quoted Dr. Kelly Hammett, he's the Director of the Space Force Rapid Capabilities Office. He said, and I'm going to read his quote. We're going to need a bunch of SCARs, and we're going to need them fast as we can make them. So what's AV's edge? BADGER and our AV_Halo is software defined. So that means it's scalable role and it's very modular architecture can have multiple satellite links from 1:1 to 1 to 1 to many satellites. And that's orbit flexibility. We can 12 units cover geo, redeploy one of those units and you can cover up to 200 contacts in LEO and MEO, where you need surge capacity because we hear this quite a bit, what area needs search capacity the military can move that to an area, and it's flexible. It's transportable and mission resilience. So one of these BADGERS again, has 160 of our AV phased array antennas but to keep full mission capability. When it's compromised and one antenna goes down and has an issue, the whole system will not go down. I'm excited. We're ready to scale. You're going to see this. Our whole facility is outfitted with full test automation and the manufacturing is underway in the first deliveries this year. So the customer is asking for more. We're ready to build more. But rather than making me describe it, let's see BADGER in action. Leading the business unit and driving the SCAR program is Michael Pace, our General Manager for the product line. Michael and his team have been at the center of this win. We're going to queue up a short video, and that's going to highlight our capabilities of the system. And I want to welcome you all to Michael. Michael?

Good morning. Thank you, Mary. I appreciate it. So I am so excited to have you guys in our facility today in just a few minutes. We're going to be able to go on a tour and show you some of this hardware. I want to correct one thing real quick. This is a fourth scale BADGER. So full BADGER is 4x the size of this, you're going to see it in the high base. So before you guys ask that question on the tour, I wanted to clarify that. Let's talk really, really quick about what is the status of this program? Where is the technology? Where do we stand overall for technical risk? So if we go to the first little slide on here, you're going to see how we recorded a demonstration using our test hardware that you're going to see on the tour. We did this about 2 weeks ago. And when we did this demonstration, this has all of our beam forming technology, and it's really solving that problem of you have one ground site and you've got one satellite. We can't do that anymore. So if you look at this picture, this was using our scheduler. This is showing all of the active satellite passes that we had available to us over a 4-hour period during this demonstration. So all of these lines represent having to have your own dish on the ground in order to talk to that specific satellite. During the demonstration, we're going to show you guys acquisition and tracking, and we're going to do that for two active beams, which would simulate two satellites coming down. The system when we demonstrated this was capable of 12, but we're going to show you an example of two. So this is live hardware as we hit play on the video. The first thing we're going to do is acquisition. And as soon as this starts to go, what you're going to see is a couple of different things. First of all, you're going to see 2 diamonds on the screen. These 2 diamonds represent our 2 targets of what we want to track down to the bottom, you see our downlink spectrum. So this is a signal that's coming from the satellite. This is a live demo outside for a geostationary satellite, and we're going to start by actually telling the system to go ahead and acquire. We come in, we click on it, we say acquire the system immediately within 2 seconds, finds the satellite in space. We don't know where it is, and we start our track. So you see that diamond on the target. Our spectrum goes up, as you would expect because you're seeing the downlink come down. We're going to do the second thing for the second beam. Now we're tracking in both of those. Now we're going to quickly show you guys, well, that's good to acquire, but what about if this target is moving, what does that look like? So what we're going to do is we're going to actually move our base. You'll see the spectrum on the downlink stay consistent but you'll see our targets moving around. So this is showing that we're closing a full tracking loop for these satellites. Again, this is a geostationary satellite. We're showing 2 beams of operation. And the big point here, like why this matters is, we are getting through all the technology development that we need in order to finish the base tile. This is actually a live beam forming tile that you're going to see on the tour. And that scales very well as we go from 1 tile to 9 tiles to 160 tiles to thousands of tiles that we have on this overall effort. So if you go back to the slide deck, I'm going to jump back into that real quick. I'm really highlighting Phase 1 is all about technology development. Let's get the first 1 field and get it out into the field and get it operationally accepted by the Space Force. Mary is now going to talk a little bit about Phase 2 and Phase 3, which is all about global operations. And then as Scott talked about earlier, Phase 3 is all about taking that software stacked AV_Halo, integrating these different personalities into the system, so we can enable future system modes, not just for this customer, but for all of our AV customers. So Mary, the floor is yours to talk about the rest of this. So thank you.

Thank you, Michael. Thank you for the incredible work from you and your team. And as we look ahead, Michael said, the SCAR road map doesn't just start with hardware because it's software defined. So next, we're scaling for global operations and BADGER antennas are built to evolve with the mission. That means as time passes, we don't have to replace the hardware. We extended its role with software upgrades. Today, we're already investing and what Michael did say is called personalities. Those are next-generation enhancements that allow the antenna to take on additional mission profiles, all through the software. That's how we future-proof the system, hardware delivered by 2030 and innovation that keeps adding capability well beyond scaling with demand and growing with the mission need. So we've talked about communications in the RF spectrum. We're going to move to optical communications with our family of space technology products. This is where our decades of space heritage shine from on-orbit sensors to fast steering mirrors to control electronics, all the way to integrated laser communication payloads. Our mission-critical with over a dozen different customers across both government and industry partners. A simple example of our criticality, the GPS your phone uses or the weather satellite. Did you guys check the weather every morning? I'm one of those people. Those are both enabled with technology like our control electronics, powering the satellites. We do that through autonomous control electronics and command and data handling satellites. So we have to ensure flawless operations. How do you do that? We run these through millions of lines of code, simulation and testing. If you can believe it, we do that all before it's entered environmental testing. Environmental testing, what does that mean? Vibration, shock and full thermal vacuum chamber checkout. That's actually all done here in our facilities. You're going to see that. And it's the level of trust that customers place in us because we're providing the brains and nervous system of these satellites. That means you have to have redundant capability. It can't fail. Failure is not an option in our missions. So one of our missions, we're going to talk about that. I mentioned we had 260 systems on Orbit. And one of those missions is the NASA Laser Communication Relay Demonstration or it's called LCRD. It included a terminal that was installed on the International Space Station, ILLUMA-T. The mission was providing high data optical relay. We are actually going from LEO to GEO all the way to ground with NASA. Our role, we provided the gimbals, the pointing, the control electronics. Those were the foundation of the mission, the precision laser links and the terminal, it must continually point to that narrow laser beam across distances under the harshest environments. That's thermal, vibrational and orbital motion constraints. And this heritage, why is it so important? It enabled our new $240 million laser communication award. It's proof that our legacy isn't just a history. It's directly fueling the next wave of growth in laser communications. But why was this award so critical, because the foundation of how we built our system for relay communication, it operates over 200,000 kilometers. That's multiple orbits. So that's the design that AV invested in, and it expands not only from LEO but for MEO, GEO, 200,000 kilometers, you can go look at it goes beyond GEO. And so that's not just limited to LEO like many of our competitors. In fact, earlier this year, in March, the Government Accountability Office, or GAO, published an article. It was calling on the DOW to instill a hybrid multi-orbit satellite communications. Why? We need to avoid fragility, bottlenecks and vulnerability in our communications for the future. And we also have to address the rising data demands. ISR platforms, they take millions of images a year, don't they? Missile defense systems, they need real-time secure links, and our system provides that resilient and secure backbone to support all of these mission-critical architectures. In fact, this laser communication system from our heritage and that deliberate strategy to go from components to payloads, it's vertically integrated with all the critical technologies. That would be fast steering mirrors to improve the image, a control architecture that's autonomous and AV_Halo with high technology heritage. This enables us to move fast when we're vertically integrated to address the new needs. In fact, the design directly supports Golden Dome requirements. That's survivability under attack, secure command and control and this rapid cross-domain connectivity. Earlier this year, we proved our capability for resilient, secure multi-orbit communications at mission scale. So let me show you a video of what that looks like. And when you watch this video, know that it's a test. It's a live demonstration. The live demonstration, you'll see this optical table in the front here. That's simulating a link over that 200,000 kilometers, proof that the system delivers the performance, resilience and mission-critical architecture the DOW requires today. Let's queue that video and see the optical checkout. [Presentation]

Okay. Now you've seen how the system is tested in a functional checkout. I want to introduce you to [ Andrew Vrabec ], our General Manager for Space Technology. He's been leading the team that makes our space products work. He's going to walk you through just how challenging point in control really is to achieve on orbit. Because when you're dealing with laser communications, you're talking about beams the width of this of a single strand of hair that's traveling across hundreds of thousands of kilometers. So the smallest vibration, the slightest jitter and the link is lost. But [ Andrew ] and his team have mastered that challenge, and he's going to give you a demonstration that shows what really keeps a laser beam locked on target. [ Andrew ]?

Thank you, Mary. All right, I now have a laser. So look out. It's really fun to talk about this technology, the advancements that it's made, our capabilities, our performance and all of that. But I want to first acknowledge it's the people of our team that have made this from a strategy, a dream over many, many years. It goes -- it truly does go back to this angular rate sensor, this hunk of metal right here that is so powerful over many years of not only improving that, developing our fast streamer technology, all of that to get to a point at the component level. Then moving on to the full system and actually build it up to get to this demo point. We have amazing people in Space Tech, and I'm so proud across the board of everything that we've accomplished. The demo that you just saw, this was not just customers coming in, hey, look what we can do trying to sell something? No. This was a critical requirement for that major contract award that we received to demonstrate a [ TRL 6 ] capability. And by doing that with 2 terminals, what you see here is actually our Gen 3 terminal. Our Gen 5 terminal, we actually have back in the brick building, you'd be able to catch a little glimpse of it later. But through that demonstration and our range in a box by attenuating power, we were actually able to demonstrate of over 200,000 kilometers, the ability of 2 satellites to communicate and pass information back and forth to one another. Now typically, you'll have anywhere between 2 to 4 of these payloads on any given satellite that is actually utilizing optical communication. So just remember that, too, when we start talking about the numbers and the quantities of satellites that Space Force is putting up. They're looking at GPS opportunities in the future, moving to laser communications. So that is a lot of work to do, and we're prepared to do that. So that demo, why were we successful? Again, like I said, it built on our heritage, but it really comes down to our line of sight stabilization and our pointing acquisition and tracking capabilities that we have. That's in our electronics, it's in our firmware that we develop in-house here. It's in everything that we do, in our development and now moving to manufacturing this payload. So to try to humanize it a little bit, I just want to kind of step through a real quick example of what that point in accuracy, the jitter rejection what we're actually talking about here. So if I were to -- did it turn off, Mary? There we go. Oh, I was moving the slides. So all right. I had like three cups of coffee this morning, so realize that. But just right here, if I pointed it up on the screen. And normally, I'm pretty calm, but you can see that amount of shake that I'm doing right there. Now what if the distance was a little longer, and I pointed up to that wall. You can just see it further exaggerated that beam that's pointing. Now I want you to imagine from standing on our rooftop of our building out to the beautiful Manzano Mountains that you see out here to have the pointing accuracy required to go and close that link between -- that data link between 2 satellites, you need to have the pointing accuracy to actually put this link on $0.5 that's small from this distance right there. Now when we're talking about long-haul lasercom, important discriminator there is the distances in optical comm that is occurring today at LEO represents roughly those satellites are about 50 or so kilometers apart from each other. When you're talking the distances for the programs that we're winning, those are, like Mary mentioned, over 200,000 kilometers. That's 5,000x greater distance that you need to have this precise pointing accuracy in order to close that link. It's pretty darn impressive. So as I mentioned, the line of sight stabilization, the pointing acquisition and tracking with this terminal right here and four of them are on each satellite this really truly represents the next generation of optical communication or laser com, as we call it. Not only showing that we can go and meet that total addressable market today but into the future as well. Thank you all for your time.

Well, thanks, [ Andrew ]. And congratulations on your new Board and your team. We talked about lasers in space. Let's go to lasers on the ground. LOCUST is our laser weapon system. And AV is the first company to pivot from science and technology to field-ready systems. We sold our first unit commercially actually to the U.S. Air Force 5 years ago. Now we've delivered 13 systems, providing full integration. And what do I mean by that? That means you can install any type of radio, any radar, any command and control system. It can be layered with other counter-UAS defense. That's very important. That's what we need, all the way from AV counter U.S. tools to others providing a full end-to-end kill chain. And we're expanding our product line to advanced target and tracking systems for gun sights and space domain awareness. What's important is all the technologies leverage the same core technology, precision to acquire, track and point. In directed energy, we also have a rich history. It dates back to the Air Force's airborne laser program when we supported the development of a laser on aircraft. This family of products, why is it so important? It allows us to scale manufacturing. You do that faster through hardware commonality. So our strategy was very thought out. An AV_Halo PINPOINT, it's the software and controls, it's installed across the entire product line because in a fight seconds matter. Right now, we are deepening our customer base across adjacent markets and missions to include the U.S. Navy along with proprietary and commercial customers. I want to tell you, we've delivered to the U.S. Army our Army multipurpose high-energy laser or AMP-HEL. And you will know that we have completed all 4 mobile systems, and they're completely integrated and outfitted with a LOCUST system, AMP-HEL's platform approach is agnostic and that meets the U.S. Army's future force design requirements that make DE a part of the force structure with hundreds of systems by 2030. In that middle picture, you'll see LOCUST is pictured on a joint light tactical vehicle or JLTV, that's pictured in Yuma proving grounds for government acceptance. Those are rugged desert trials. They validate your system performance under exactly the conditions the war fighter faces. Now I'm going to ask you guys to look closely at that image on the bottom right screen. No, it is not a stock or simulated image. This is the same AMP-HEL system in the middle, pictured in an in-theater exercise after that Chinook sling loaded the AMP-HEL. And what you can see are the war fighters and the conditions they're operating in, Dusty sands, and it's hot. I can tell you that. But even in that setting, we're at full mission capability. That proves our systems are operationally ready and reliable. Typically, new systems that are introduced only have about 75% operational availability. I told you how hard that is on a program like SCAR. But to tell you new technology like LOCUST that we've delivered the 13 systems in field. They have over 90% availability. The army is right to place lasers in the battlefield because the rate of production of low-cost drones from our adversaries like China is on the rise. We can't match Chinese systems for systems. We do need asymmetric technologies like LOCUST. This one scale, it's mobile, and our AV_Halo software-enhanced directed energy system, it changes the cost curve to that cup of coffee in front of you per shot, and it makes lasered-layer defense a reality. I want to show you the system in action. This is a live demo of our LOCUST laser weapon system. It's actually coupled with our AV Counter-UAS, Titan and Titan SV systems. What you're going to see is a full end-to-end kill chain, demonstrating the power of the system's ability to detect, track and defeat a drone in seconds. This also happens to be the system if you're going to take the afternoon road trip, you're going to see down south. So what you're going to see is the ability to notice how the laser comes out of the Stryker, we're going to let you go in the Stryker today. So let's watch the video. [Presentation]

So looking ahead, our road map builds on AV_Halo PINPOINT IP. That includes our tracking and control systems, and we're expanding it into 3 critical expansion areas as shown on the bottom of the chart. First, we're scaling to systems of 150 kilowatts. This power directly addresses the Golden Dome counter cruise missile threat. That's the next layer of power for layered defense. Second, we've launched a new product line using our acquisition tracking and pointing hardware with AV PINPOINT upgraded with AIML. That's this target and tracking system for gun sites. So if you want your gun to shoot where it should, you want to use one of these systems. That AIML upgrade will upgrade to reduce the target and tracking time for fixed and mobile gun site systems. And just in the past 12 months, this product line has already secured 4 new contracts with 4 new customers. And lastly, we're applying the same proven IP to a new flagship adjacent market. proliferated space domain awareness. We've talked about the hundreds of thousands of satellites on orbit today. We need to be able to track those, find them in a proliferated architecture. And just earlier this year in March, we beat multiple defense primes, we were awarded $100 million to begin building a prototype system. So that took our expertise and field-ready systems into an entirely new mission set. So our AIML enabled AV_Halo IP, it doesn't just power today's products it's fueling tomorrow's growth markets. And I'm pleased to introduce [ John Geraghty ]. He's our General Manager for Directed Energy. John has led the teams that turned LOCUST from concept into a fielded system and he's driven the creation of the gun sight and tracking programs. John is going to show you a little bit about the tracking system.

Awesome. Thank you all so much for your time today. I am super excited to be here. I think I have the best job in the company because we are actively disrupting the battlefield today. So some of the technology that you saw in that video, an awesome video, by the way, and we can't wait to show you in theater or in our simulated theater today at the range. But it's really hard on the battlefield today to track drones. You see traditional weapon systems in effect are struggling with that and conflicts like you see in Ukraine. Now where we're differentiating that is, and like you saw in that video and you'll see firsthand is being able to track those drones not only in clear blue skies, but down in the clutter where radars and other effectors struggle. And that same technology, we're scaling into other disruptive markets like Mary mentioned. So as we've dominated the directed energy counter UAS space, we're taking an AV PINPOINT software scaling it into this new market of targeting and tracking systems like gun sights. We like to think that if you can shoot a laser, you most certainly can shoot a gun, and so fundamentally, we're taking that software and making it as easy to use as possible for operators to track, detect and engage threats regardless of the effector. And it's so easy that they're all powered off of just a simple Xbox controller. And so we're taking operators with 0 experience with these weapon systems and effectors and just a matter of a couple of hours training them up to be lethal war fighters in the battlefield today. We're super excited to show you that on our high bay tour, as we have multiple systems that are getting ready to be delivered to new customers, but also on the range today as we show you the real power of directed energy and the UAS fight today. Thank you so much, Mary.

Thank you, John, and thank you for your team for showing us where the technology is headed. That concludes the highlights of the AV Space and Directed and Energy Group. You've now learned systems that we perform in space across multiple orbits and on ground from RF SATCOM to directed energy. You've also seen the people behind the technology who make it all possible. Our technology is not science fiction, we're ready to address the market growth. Now I'm excited to tell you, you have a break, approximately 15 minutes. So thank you for that. Thank you. [Break]

Hi, everyone. We're going to go ahead and get started with our Q&A. Can I have our panelists join me up at the stage, everyone grab a water or something and take your seats. [Operator Instructions]. And Wahid's going to go ahead and lead the discussion, if he doesn't take the question himself, he'll pass it to one of the panels we have here. In addition to the speakers that you've already heard from today, Church Hutton is also going to be joining the panel. He is our Chief Growth Officer for the company, manages everything out of our D.C. office.

Okay. Is the microphone turned on? I think it is. You have -- great. Okay. All right. So what we're going to do is we're down to the final stretch another few minutes Q&A before we get ready to go walk, get the floor. I think the next 2 sessions are the most exciting part. What we want to do is we've got all the key leaders here. They will answer the questions. Of course, as I said from the beginning, this session is for all of you. Welcome any questions you may have. Anybody has any particular questions they want to start with, Andre right there.

So yes, no, thanks for the breakdown on AV -- by the way Andre Madrid, BTG, I think most people know me here. Yes. So thinking about AV_Halo I guess, to really dumb it down, just how does this compare to other software platforms out there. Everybody talks about being modular, open architecture, platform agnostic. But really, what is the enabling tech and how does it differentiate versus some of the competitive solutions that are being pitched out there. It's obviously top of mind to with CCA autonomy packages being awarded in the past week.

Yes. Scott, do you want to take that one?

Yes. So I think the way to answer that is, first and foremost, we're doing the open architecture, we're doing amongst our own platform to allow for more of operational excellence size. So internally, to allow our own ecosystem we built. We're doing it amongst our own pieces of software, so that, obviously, the communication cycle, Trip talked about being able to make decisions quickly. Doing that within our own platform first, and we're proving to ourselves that, that is integratable at that boundary before going like external with it. I think where a lot of companies break down and have issues is when they think they have a nice tested interface that they think they have an interface that they've exposed having never really done it at scale, and it is when it falls apart when the integration kind of falls apart. So I think that's, first and foremost, one of the bigger differences between us. I think second, we are looking at this problem from kind of the edge first. I talked a lot about owning and dominating the edge in our software space. We started there first and kind of made our way up in some of these other more -- these larger C2 systems. They've kind of started at like very high level and centralized and kind of starting to move down. And there's a lot of challenges, I think, they're going to find along the way that because of the kind of vehicle and drone manufacturer we are and the kind of software companies we've acquired like Tomahawk, we understand the networking issue that comes with all that stuff. We understand bandwidth and data rates and all these kind of things that some of these other companies that are claiming they're going to get there, are just now finding out and having hard times with it. So I hope that answers your question.

The way that I would also add to Scott, is that I really -- it's a very fair question, right? Because as an investor, as an analyst, as an industry player, you want to know how does this compare and differentiate? It's really hard to know what others do. And I would ask you guys to ask him to explain exactly what their software does and how it's implemented. What you saw from us is we've got a bottoms-up approach to build the layers of the stack, what we call the suite of the software. And it starts from the smallest elements of the assets on the edge and build capability on top of each other and build that ecosystem. Number one. Number two, it's designed from the ground up to be interoperable, not only with our own platforms, we actually integrate with a lot more competitor platforms today than on our own platforms. The Tomahawk software, for example, Kinesis is integrated with more other types of drones than our own drones today literally. They've got 10, 20 different platforms, the ground robots, UAVs that they've already integrated with. So the challenges that you refer to is bandwidth, communication protocol, differences, APIs. We've solved all those things for a lot of different players. And I'm not so sure what others do, but our commitment is exactly focused on what the customers want and how we build the ecosystems around that. And we're open to actually integrating and operating with other advanced battle management systems, too. You've already seen that in some of our platforms that we work with other platforms, other -- it's already in the field and fielded today. So there is a difference between people saying our software will do this versus our software is doing it. We're in a former -- latter category. Our stuff is already fielded, working in many, many, many cases by the thousands. Now I'm not saying that there's not room for more players. There's definitely room for more players. How they get there and when they get there and they achieve that, then that's a bigger bar to overcome.

One -- Church Hutton, Chief Growth Officer. One additional sort of comment I'd make on this, and we were just having this conversation. So 2, 3 years ago, all anybody could talk about was JADC2. Then that has sort of gone away. And we're not attempting to eat the elephant here in that JADC2 kind of a way. So you look at what he described as Kinesis AV_Halo command. That is JADC2 for the battalion and below level in the Army, and it's demonstrated and it works and it's integrated with all of our platforms and a bunch of other vendor platforms. So we'll as we move into production and get into the field, you have something that is working. And then that scales across customers and across domains.

Yes. I will add one more thing to this, it had triggered another thought. People don't really understand and appreciate the amount of R&D dollars that's going in our category. Folks talk a lot about we're spending this much money, this much money. In the last few months alone, we've won hundreds of millions of dollars worth of CRAD and IRAD that we're investing in this ecosystem. I don't believe that there aren't too many players that are investing as much as we are in this area, very focused on this area. Ours is very, very focused. Ours is not boil the ocean. We're very focused on the areas that we have, and we're winning programs and contracts that keeps adding to our capability. And so it's a machine and an engine in my view that keeps sort of feeding itself investments to keep improving with customers alongside us. So it's a pretty powerful engine, I believe, in the long run for us, in that regard. I think Greg had its hands up before. Sorry, I'm just going to go -- okay.

Austin Moeller, Cannacord. Can you talk a little bit about how the Freedome Eagle-1 in that sole source contract is differentiated relative to like Raytheon's Coyote system, which just won a $5 billion contract. And I know that includes radars and launch systems as part of that contract. But I guess, how would you characterize the positioning of that system versus the Coyote system.

Yes. So that is a very good announcement that just came out this week that I think proves a couple of points. Number one, it is a counter UAS solution that Raytheon has won the Coyote $5 billion contract, IDIQ, and it's for multiple years, training, launches, et cetera, et cetera, number one. What it proves to me, number 1 is that the market opportunity for this stuff is massive, all right? The solution that Raytheon has today is a solution. That's the only solution out there today. And it's a solution that the U.S. Army themselves are not happy with totally. They would like a more improved solution. Raytheon was one of the competitors on this FE1 program called LRKM, I believe, is called LRKI, long-range kinetic intercept is the name of the actual effort within the U.S. Army. My understanding was that the Raytheon solution was a modification to existing Coyote. Even with that does not meet all of the U.S. Army's requirements. Our solution was designed from the ground up, clean sheet of paper to meet all of the requirements of the U.S. Army. I just mentioned one specific area of differentiation. U.S. Army would like the next-generation counter UAS missile, this Freedome Eagle category to be agnostic to any radar system. They want it to be completely open and modular to any radar system that's out there. They can pair it with whatever radar system for the tech mechanism. Ours is designed exactly to do that. Coyote is not. That's one of the probably 20 different things that is differentiators. We've designed this for specific mission requirements they have in terms of altitude, range, kills on target, cost points, et cetera, et cetera, et cetera. So there's a whole list of things that we go to -- we could talk about. I'm not sure if you have all the details, but there's several differences. And the U.S. Army selected us only so far. So we're the only awardee on this contract. And we've got to deliver 18 or so -- 80 systems or so in the next 18 months. And that takes us through an LRIP program. And that shows you what the potential for this product is. That's why if you -- I gave you my top 10, that's 1 of the top 10 programs that I believe and product that I believe it's a $1 billion-plus franchise long term. It should -- the economics is compelling, compelling. We cannot just shoot $2 million to $3 million missiles at $50,000 to $100,000 drones. And if there are hundreds of thousands of those drones, they need another solution. And that's exactly what FE1 is designed to do.

Yes. As Wahid said, Freedome Eagle-1 is addressing a capability gap that exists within the DOW today. That cannot be addressed by any existing systems that are affordable and cost-effective. So we can't -- as Wahid said, we can't shoot down group 3 [ Shahabs ] with $1 million missiles. We have to be able to do that much cheaper with counter UAS missiles and with directed energy.

Okay. Next question. Sorry. Somebody behind.

Colin Canfield, Cantor Fitzgerald, appreciate it. One quick housekeeping on that. So is it fair to assume that there will be a follow-on award or another award 18 months from now, where AeroVironment is the winner on that system. And in the interim, what is the kind of size and timing of the missile interceptor contract?

Yes. So I think this is beyond just -- beyond just the Freedome Eagle-1 or the next-generation counter U.S. missile. I think the Army strategy as of today, it may change tomorrow, may change next year, may change 6 months from now is they are trying to walk away a fine line between a program of record, locking in, in the program of record, then a capability refreshment every 2 to 3 years. So today, they selected our missile or weapon to be developed and field it. If we get to that a year from now, 1.5 years from now, and we deliver and we perform, chances are we're going to get the next tranche and a big award for so many units. I'm not sure exactly what the numbers are, but the program requirements are pretty large. If we -- if there's something better in the market, Army wants to keep an option open and says you know if there's something better in the market than we want to go off to the market again, see what happens. If the existing solution requires improvements, we may want to complete that in ask someone else and it were AV to be improve it as well. So you should expect that, in my view, in a lot of different categories, small UAS, Group 2 UAS, 3 OAS, loading munition, LASSO program, all of these things in order to basically create a better happy medium between long-term locked in vendor lockups program of records versus I can't just carry 5 players. I like this. This works. And if technology improves, I'd like to have optionality that I can switch. I think that's the mindset that I see within the U.S. Army in general. And I would expect this to be the case on Freedome Eagle-1 as well. So yes, after this period of performance, there will be a transition, another award for potentially more depending on our performance, and the Army's position.

And to answer your question on the current contract, it was recently published by the Army through AMTC It's a $98 million contract for the current phase.

I appreciate that. And then one quick question on the strategy side. If you could maybe talk about kind of your chipset strategy and how you're sourcing across the segments for the chipsets and then also the level of kind of like commerciality and testing that you are doing with those chipset providers and how it's informing your EW and digital like beamforming strategy?

Yes. I mean so we use a significant number relative to our peer players, not necessarily relative to the market for these chipsets because the market for these chipsets are massive. It's -- we're not even a little dot on that or a drop in a bucket in general. We're very much close with companies such as NVIDIA and Qualcomm and AMD for the chips that they make. We -- there's an effort with NAV ourselves on standardization across different platforms and boards and standardization of processors and layouts, commonality. A lot of the AI autonomy capabilities you see today essentially is the same that goes into all the other birds or vehicles, as you could see. Long term, there's several areas of commonality we've already focused on. I don't want to go into details of that because some of it is our secret sauce. But things such as avionics, ground control station, autopilots, gimbals, payloads, autonomy, automatic target recognition, these software modules are going to be incredibly consistently similar across the board. And in fact, even the hardware platforms will have slight modifications primarily for form factors, swap, size, weight and power. But the pure performance requirements are going to be the same. They're going to run on similar embedded software platforms, similar operating systems, similar development. And also the iteration and improvements is going to be across board. So when we make an improvement on one module and next-gen module, 20 different platforms will benefit from it, for example. And so, a, we're in touch with all these folks. We've got very close strategic relationships with them. We keep in touch on their road maps. They understand our road maps. They actually have -- NVIDIA has a very dedicated team, specifically focused on aerospace and defense. I'm not sure if you guys have noticed, they've got an event, they're going to be at AUSA. They've got an event there as well and we're very close with those guys, similarly with Xilinx and the Qualcomm processor, et cetera, et cetera. I think Ken had his hand up earlier.

Ken Herbert with RBC Capital Markets. Two questions. The first is you've got a pretty aggressive sort of product portfolio ramp here. The company now has sort of reset R&D as a percent of sales at a lower level, reflecting the blended operations. Does that hold at this sort of 7% to 8% level? Or do we see maybe a reversion back to sort of legacy AeroVironment elevated R&D levels.

Yes, go ahead Kevin.

Right now, we're still aiming for the target that we're at the 6% to 7%. Obviously, it's probably one of our most difficult challenges from a long-term planning perspective, Mary alluded to that we're in the middle of that process to really allocate that to the markets that we're addressing. So our commitment, though, is to keep it at that level, not to bring that down to get EBITDA leverage. I mean the EBITDA leverage should come through increased product sales and through SG&A leverage versus R&D leverage. So we at least are committing to get to that level, could be at the high end of the level in the shorter term, things like that, but not to go back to 10% to 12% type of thing at this point.

Great. And if I could, across your portfolio and maybe use a few examples. How do you think about pricing? Do you feel like with all the pressure on the volume ramp and the competition, you're getting appropriate pricing? Because I think you've done a good job. It seems like of holding pricing on Switchblade and some of your legacy portfolio. But clearly, as things evolve, do you get a sense the government is willing to really pay what you think is a fair price for these products? Or are you finding that you're having to maybe get a little bit more aggressive on pricing?

No. I think generally, I feel pretty good about the pricing for a few reasons. Number one, 15 years ago, that same question existed. We were a very much smaller player, a couple of hundred million dollars worth of business. And there was a sort of -- what's -- yes, a thesis that you're not going to be able to hold the margins as the business grows and the volume goes up, you're going to have more competitors and AV is going to be pushed and squeezed for margin. Our margins actually in small UAS has been able to maintain or actually in fact, even improved a little bit. Same thing with Switchblade. As the volume goes up, we've actually been able to improve. There are several reasons why. The biggest myth if you ask me is the following. A lot of people think that AV is not the low-cost manufacturer. There is nobody that makes this stuff a lower cost than us. The volumes that we're talking about today, we are the lowest cost producer of small UAS, loading munition, counter UAS RF systems in the world today. We compete with these folks all the time, including the Silicon Valley startup or VC-backed companies, not 1 or 2 or 3, but dozens and dozens and dozens of them. We've done it over the last decade. So somehow few folks believe that as the volume goes up, we're not the low-cost manufacturer, and we can't be competitive. That's completely actually not true, in my view, number one. Number two, when you stack up the requirements of the U.S. military and these things, all of a sudden, a $1,000 FPV becomes a $15,000 drone. And that's been evident that a great example of that is the effort that DIU had with SRR, short-range reconnaissance. Their price target, I remember,, 5 years ago was less than $3,000. The systems they're buying today is still $20,000 plus, up to $30,000 systems, and that's a quadcopter. And so when you put -- layer all the requirements that the U.S. Army has and other customers have for reliability, ruggedness, security, cybersecurity, et cetera, et cetera, it becomes that much. Could the volumes reduce the price? Yes. That will primarily happen with consistent more supply chain and supplier efficiencies. And I believe we'll have an advantage as it goes there because we're the ones that have the best expertise and the highest volumes than anyone else. So I feel good about the fact that we're going to be able to maintain that over time. Could it change? I mean quarterly, our gross margin percentage fluctuates a lot. It's primarily because of the fit mix and the chunks of contracts that we get because of different products. The last comment I'll make on this is following. We've actually -- I would say, one of the companies that have mastered the art of knowing how to take a product that we develop first under a joint development effort, AV and the customer and then transition to some point of commerciality. Almost all of our small U.S. today is a commercial item. We published a price list as a catalog, and we sell the customer, we don't have to provide cost justifications. We moved on that front with Switchblade, the majority of the Switchblade, not all of it and as modules, subsystems that we actually are selling it as commercial items. And so we're doing the same thing with SCAR systems today. Titan is the similar exact same scenario. LOCUST will be in the same bucket. So the BlueHalo products, which are a little earlier in transition from development to production is following the same exact, what I call, sort of scenario or movie. And I think over time, that's been our recipe and strategy since we've been a public company. And I think we've been quite successful at it.

Just to add on what Wahid said or Trip earlier, we're not selling posters or insurance, right? We're selling products that have to work and they have to work every time. And the customer is willing to pay for capabilities that are going to provide the value to the war fighter when they need it. And so they're willing to pay a premium for that. And we provide those capabilities, and we're willing to compete with the competition as we do every day.

Byron Callan, Capital Alpha Partners. Two questions. You may have touched this a little bit, Wahid, when you're talking about the Army, but all the changes that have been going on and how the DoD or Department of War is acquiring things, [ JSAs ] getting thrown in the wood chipper. How does it change how you align with your customer and how you engage with them? And what kind of risk you need to take? And the other thing you've talked about scaling is an advantage. Can you talk about data as because I'm sure you learn an awful lot from what's going on in Ukraine. Is that a proprietary advantage for you?

Yes. Anybody wants to take that or you want me to take it?

Okay. Okay, go ahead. Why don't you just take it. I'd like others to answer some questions too.

So the way that I think about what's happening in the current environment, one, you have to be ready for a dynamic set of events every day. So what we've learned based off every major product and program, we actually have maps that show who all the decision-makers are, and we adjust those as needed, maybe on a daily basis. Okay? It's really about customer intimacy and understanding who has the decision authority, who is maybe establishing the requirements or wants help establishing requirements, right? Because that's what we see when administrations change. So I would say I feel very comfortable and confident in our team that they are laser-focused on their customers. You hear me say the word mission, mission equals customer for me. And if we're not talking to them every day, like we don't need a big trade show to talk to our customers. We have established set meetings with every major decision maker within the ecosystem, both within the ICE and within DOW data. So I'll let [ Trace ] speak a little bit more to his team, but I'm going to talk a little bit about his team because it used to be part of my team, and I'm very passionate. Titan is a great example. We were very intentional early in the Ukrainian conflict to support our customers. And that data because all of our Titan boxes run off of AIML has really informed us. And the question I've gotten is like, hey, if you're not actually living in Ukraine, how do you adapt? How do you gain new technology, which is probably where you're going with this. And so what we've done, we've stayed intimately involved with our customers, and we believe in what we call customer success, not field service. And customer success is being shoulder to shoulder with the war fighter, understanding both the dynamics of what happens with hardware, but more importantly, the data that's coming into our systems that can collect data. We shoot that directly back in, and Mary has a couple of cool IRAD programs that she could probably show you some examples today as we take our tour, and we'll point those out as we go. But I feel really comfortable that we are highly informed of the current threats. Hence, why we hug a cactus every day and push our teams really hard because it's a little concerning. So do you want to add anything, Trace?

Yes. I would say we do have a competitive advantage, right? We're in 55, 60 different country, allies. We have people in Ukraine on a daily basis, our own employees that are there, providing that feedback from the customer. And we are constantly evolving our products to address the threats that we see in Ukraine and what our other customers are telling us that have our existing products. So it is a competitive advantage for us. And as long as we're agile and we update our products and we refresh them and we develop next-generation systems, we will have an edge and an advantage.

And if you recall, even in the Ukraine conflict, the initial aid packages that went to Ukraine, it was a whole bunch of different things. If you look at the picture of that and you'll make a list of all those things that the U.S. gave and what was given to them repeatedly more than once are the things that actually have been battle proven, and the Ukrainian says, "I want more of that. I don't want any more of this." And so we've been lucky and fortunate that we've been one of the most common repeated -- there's been some few other things, HIMARS, 155 caliber, et cetera, motors. So there's been categories of things that are battle proven that is actually working that has gone repeat, repeat, repeat, repeat tranches to support Ukraine. Many others have gone the first one and then the answer has been, I don't need any more of that. We've seen examples of our customers using them as spare parts for other drones, for other systems in the field or making -- breaking them apart, making new things from them. I mean we've seen real examples of that in Ukraine already. But I do believe that we have an advantage in this area in the market.

I'll add one more to that, too, sorry. I'm the AV Halo guide today, right, so I'll talk on that. On the data side, certainly, what we're finding as we're operating in theater with more capable actors is that there's this game of cat and mouse. Certainly, an ability to update software to be able to create change behaviors, it has got to be -- and we do a pretty good job of that today, but we want to drive that even better. And in order -- and as you've seen with the administration and the emphasis on encryption and these kinds of things and cybersecurity, a big part of the AV Halo ecosystem and platform is also the development cycle, the development process, bringing all of that into a centralized way of doing things so that we are having a focused element within the businesses that are worried about cybersecurity and the way we develop all our software is getting the benefit from that kind of every time. And then also how we deploy the software, being able to do it very quickly and in a more modern fashion than is traditionally done on the battlefield today in a secure manner.

Peter?

I'm sorry, Greg, I'll come back to you after that. Mic was closer here.

Yes, Peter Arment from Baird. Yes, Wahid, if we were here like 2.5 years ago, would have it all been a Replicator and discussions, obviously, before the BlueHalo. And so maybe, Trace and you both want to weigh in on this. But just regarding the change administration, we've seen a lot of discussions. We've seen contracts move to different program offices as well. Maybe if you could give us a state of the state around kind of the changes that you've seen from Replicator into now these changes in these new program offices and of course, now DIU kind of being absorbed by Emil Michael and his team inside the DoD. And obviously, he's a Silicon Valley guy. So he has his roots kind of probably trying to support companies like AV.

Yes. So I mean, there's been some articles recently about Replicator. I'm not sure if you guys have seen or not. We're actually a successful poster child of Replicator because we were one of the very few companies that were selected as part of the tranche 1 Replicator. We've delivered systems for that, and the customer has been very happy. It's been a success story for the Pentagon. It's been a success story for DIU. That's not been the case for a lot of other efforts within DIU. DIU had a lot of great ideas, still do, but I struggled with the ability for them to be able to actually thread the needle given all the sort of forces that are working there. What people don't realize that the defense industry, you guys do, a lot of you do, but in general, the public that -- it's a very massive machine. And shifting or changing it dramatically, it's not that quick and that easy. There's lots of forces involved in it. And so you'll see changes that come and go. And -- but I think a few things are going to stay pretty consistent. There is a shift in this area, as I said in the call, the U.S. has recognized that we're behind. I think there's a fire lit underneath all the departments, services that we got to move faster. We got to break the rules and the way that we do business, meaning in the department within the Pentagon and within the services and program offices, acquisition rules, program timelines and the JCIDS process, all this can be modified or changed, right? I believe it all speaks volumes to our DNA. It's just exactly what we've been doing for years and years and years. I sort of don't understand what a lot of the VC-backed companies complain that they don't know -- the U.S. -- they don't know how to sell to the U.S. DoD. You can't blame that on a customer, for God's sake. I don't know how to sell to a market, and I want to be a player in that market. How does that sound for any industry? It doesn't sound really good. So we have to learn how the customer buys and essentially may not be the best way to buy, but it is the way they buy. And they are the customer, and we have to adapt to that. And we actually, as a company, have done, I believe, really well, knowing how to do that. And we've taken calculated risks. When the Ukraine war started, we went and ordered 1,000 to 2,000 more, 3,000 total Switchblades. Parts and material, we built in advance. We knew that the demand was going to be there. We called it right. We built a factory in advance of that. We -- I was -- we were right on that, too. So we are ready. In fact, the reason why we were [indiscernible] is to have some funding to be able to pivot and act on this because I do see the list of things you saw there and the list of priorities that I mentioned, the excitement. As the U.S. starts to -- the services to acquire some systems and they operate really well, the chances are that they're going to direct more funding to buy more of that. There is a need for counter UAS. I had this discussion in the hallway with one of our analysts about direct energy counter UAS LOCUST. Today, in the U.S. airspace, you're not using -- there's no use of it. We're one of the first systems that have been deployed to the U.S. Army for the border, Southern border. And pretty soon, that will become public well-known phenomenon. And that could be a pivot -- a pivotal point in the industry in terms of acquiring an adoption of more directed energy counter UAS systems. Same thing with the other systems you see here with our allies. So I think there is definitely a lot of momentum in the areas that were sort of positioned quite well in that regard. I believe Greg had his hands up. Yes. Go ahead.

I was only going to add one point to what he said. The change that we've seen in this administration is very visible, but it's not unlike change that we see at every administration. People are moved around, this Assistant Secretary takes on a new role, there's some reconsolidation or change of organization. That has occurred at every presidential change. For us, who owns the concept, who owns the requirements, who owns the budget authority and who's the end user. And those things will change. We see it, right, in our own products. It was PEO Missiles and Space for Switchblade, now it's PEO Soldier. No problem, right? We have those -- that intimacy that Trip talked about, and then we just turn it back on.

Yes. I think we should go one more question before the tour, am I right?

Yes. Yes. Okay. Louie DiPalma from William Blair. So the AeroVironment team closed the BlueHalo acquisition, I believe it was on May 1. And it seemingly has been transformational, and this has been an open house to showcase all of the different products for BlueHalo, but also talk about the synergies and how AeroVironment combined with BlueHalo to become AV. So I'm wondering over the past, I think, 5 months, what have been the initial customer reactions to the combined company? And what have been the synergies in terms of your ability to cross-sell counter-drone products with your existing small UAS products in your Switchblades? And have you made progress in terms of taking advantage of the AeroVironment like allied relationships and being able to export the BlueHalo products to your 55 different allies? And what else is on the timeline in terms of synergizing both companies? We have seen the AV Halo software, which like integrates, but what else is there in store?

Sure. Thanks, Louie. I'll talk about the people first. So on my team, our Head of Business Development was the Chief Growth Officer for BlueHalo, James Batt. He's got 30 years in this business, fantastic capability. On the government relations side, we've got the former Deputy Comptroller at DoD, Blake Souter, who's doing fantastic work in Washington, D.C. Our branding and marketing is run by Paul Frommelt, who was leading branding and marketing and comms for BlueHalo. So from an integration of personnel and teams, that's been fantastic. In terms of taking what AV had in its market access on the international side, I don't know -- I don't want to say too much, but we have large opportunities with legacy BlueHalo products moving into the international space that if we haven't yet, we will be announcing soon, which have been fantastic. In terms of connecting the many counter UAS capabilities that come from this organization and the customer sets and intimacy that AV brought, that has been fantastic with the standup of Task Force 401, with the elevation of counter UAS into -- at the OSD level as an integrator, right? We've been able to pull SME and SME, right, take them up and sort of expose everyone to the holistic capability. It's been fantastic so far.

Yes. And so, just to add to your point a little bit more on a big -- higher level. I firmly believe in this merger of equals, so to speak, that we're going to build a better business, better company for our customers and the mission that Trip talked about. The culture has been amazingly positive. You see the culture that you will notice as you interact with folks here, it's very much similar to AV. I believe it's a generational opportunity for AV to be one of the next defense tech primes. There's room for 2 to 3 maybe, not just 1. So I think we've got a tremendous report card, qualifications in this area as a joint force. The products and capabilities are amazingly complementary, almost no overlap, almost. We've chosen from day 1 to go for a very aggressive deep level of integration. Day 1, as Kevin said before, we've gone to take businesses and product lines and move them around within different segments, different products, business units [ in Group 7 ], right? And so we're merging very, very heavily all deeply inside. Why? It's because that's what's required by our customers to deliver the best-in-class capability and do it effectively and competitively, we've got to be the best. We do not want to settle for not the best, #2 is not enough for us. Our ambition is the #1, be the best, first -- best-in-class. And so we've had challenges, yes. But overwhelmingly, we're very happy with it. In the meantime, we're upgrading a lot of our enterprise systems. We just went to our Oracle Fusion second phase, which is our MRP, ERP and our product line management module that is being rolled out. It's effective right now. It's running the company. And we have planned phases of -- implement that across BlueHalo. In fact, the site is the next one, one of the next sites. So we're going for not a cosmetic level integration. We're going for a very aggressive deep level of integration. Why? It's because we believe in the synergies, both in cost but a lot in growth in the future, and it will position us really well for that in the future. And so far, we're very happy. I think you could see it. Retention has been really great. We're going to lose some folks, there's no question about it. We're going to have some areas of cost synergies that we're already taking steps and in some areas, we're ahead actually, and -- but we will be able to deliver. I think we're going to do -- I'm more bullish than I was at the beginning, honestly. There's always demons in the back of your head says, what about this, what about that, what about this? But the positive surprise has been overwhelmingly more better than the negatives in general. Anything else you want to add?

No. You want to wrap it up?

Okay. I am so sorry because we are -- got to go, and we don't want to keep you guys here too long. We're going to now -- I'm going to ask Denise to come up here. I want to thank all of you for this, this ends this session. Do you want to do anything else?

No.

No. Thank you for coming, of course. The next 2 things are important. Denise, why don't I hand it over to you so you can give us direction on what to do.

This concludes our webcast portion of the activities today. So what we're going to do inside the room here. First of all, you can leave all your belongings here. You'll see in front of you, you have a little box that is yours to take home and keep. It's a little gift. We really appreciate you coming all the way out here. We're very happy to host you. The next part of our day is going to be the tour. So if you look on your badge, you have a little sticker. It's going to be either red, white or blue. This is going to be the group that you're going to tour the facilities. We have 3 different tours going simultaneously in a round-robin fashion. If you have a red sticker, you're going to be with Sheena. So you guys are welcome to leave your stuff here, you can stand up, you can walk with Sheena. Blue flags are over here. And the white flag is up by the food.

Mason, right?

Yes, with Mason. If you have a connecting flight, if you need to leave at like 12:30 or 1:00, can you just let your tour guide know, we will help get you to the airport on time. Otherwise, we have shuttles departing at 12:15 for the airport and 12:15 for the optional site tour. Boxed lunches will be provided.

Thank you, everybody. Thank you so much for being here. And I think the next 2 phases, you're going to get more excited about the things that we've got. So we'll walk with you.