ARLINGTON, Va. — (BUSINESS WIRE) — December 6, 2022 — AeroVironment, Inc. (NASDAQ: AVAV), a global leader in intelligent, multi-domain robotic systems, today reported financial results for the fiscal second quarter ended October 29, 2022.

Second Quarter Highlights

• Strong bookings of $197.3 million in the second quarter
• Second quarter revenue in line with expectations of $111.6 million
• Raising FY23 revenue guidance to between $505 million and $525 million
• $86 Million FMS order received in November resulting in record funded backlog of $388.2 million as of November 26, 2022

“Our second quarter results came in line or slightly better than expectations and, given recent awards and accelerating demand across our portfolio, we are increasing our revenue guidance for fiscal year 2023,” said Wahid Nawabi, AeroVironment chairman, president and chief executive officer. “In November, we were awarded a Puma Small UAS systems contract with a ceiling value of $176 million and initial funding of $86 million. This award is the largest FMS order in the company’s history, and we expect shipments to start next quarter and continue over the next 6-12 months. This award, combined with our record backlog, gives us confidence to raise revenue guidance even as we continue managing ongoing supply chain constraints and inflationary cost pressures.

“In addition, we are also slightly reducing our profitability outlook for fiscal year 2023 due to increased R&D investments targeted at additional growth opportunities and accelerated Medium UAS asset depreciation related to a shift in US DOD funding priorities. We expect margins will recover and backlog will increase throughout the second half of fiscal year 2023 setting the stage for profitable organic double-digit growth in fiscal year 2024 and beyond.”

FISCAL 2023 SECOND QUARTER RESULTS

Revenue for the second quarter of fiscal 2023 was $111.6 million, a decrease of 9% from the second quarter of fiscal 2022 revenue of $122.0 million. The decrease in revenue reflects a decline in product sales of $8.7 million and service revenue of $1.8 million. The overall decrease in revenue was primarily due to a decrease in revenue in the Small UAS segment of $28.0 million, partially offset by an increase in revenue from the Tactical Missile Systems (“TMS”) segment of $12.7 million and an increase in customer-funded research and development revenue of $4.2 million.

Gross margin for the second quarter of fiscal 2023 was $25.9 million, a decrease of 39% from the second quarter of fiscal 2022 gross margin of $42.5 million. The decrease in gross margin reflects lower product margin of $9.2 million and lower service margin of $7.4 million. As a percentage of revenue, gross margin decreased to 23% from 35%. The decrease in gross margin percentage was primarily related to unfavorable product mix and accelerated depreciation charges related to the anticipated completion of certain MUAS COCO site locations of $4.5 million. Gross margin was negatively impacted by $4.0 million of intangible amortization expense and other related non-cash purchase accounting expenses in the second quarter of fiscal 2023 as compared to $5.5 million in the second quarter of fiscal 2022.

Loss from operations for the second quarter of fiscal 2023 was $14.3 million, a decrease of $17.6 million from the second quarter of fiscal 2022 income from operations of $3.3 million. The decrease in income from operations was primarily the result of a decrease in gross margin of $16.6 million and an increase in research and development (“R&D”) expense of $2.3 million, partially offset by a decrease in selling, general and administrative (“SG&A”) expense of $1.2 million. The decrease in SG&A expense reflects a decrease in intangible amortization expense and other related non-cash purchase accounting expenses of $1.0 million.

Other loss, net, for the second quarter of fiscal 2023 was $1.5 million, as compared to $11.4 million for the second quarter of fiscal 2022. The second quarter of fiscal 2022 included legal expenses of $10.0 million for the settlement of all claims from the buyers of our former EES business. The increase in interest expense was primarily due to an increase in interest rates. Other income, net for the second quarter of fiscal 2023 includes unrealized gains associated with the increases in the fair market value for equity security investments.

Benefit from income taxes for the second quarter of fiscal 2023 was $(10.5) million, as compared to a benefit from income taxes of $(9.5) million for the second quarter of fiscal 2022. The increase in benefit from income taxes was primarily due to expected federal R&D tax credits and foreign-derived intangible income deductions.

Equity method investment loss, net of tax, for the second quarter of fiscal 2023 was $(1.3) million, as compared to equity method investment income $1.1 million for the second quarter of fiscal 2022. Subsequent to the sale of the equity interest in HAPSMobile during the three months ended April 30, 2022, equity method investment loss, net of tax no longer includes activity from HAPSMobile.

Net loss attributable to AeroVironment for the second quarter of fiscal 2023 was $6.7 million, or $(0.27) per diluted share, as compared to net income of $2.5 million, or $0.10 per diluted share, for the second quarter of fiscal 2022.

Non-GAAP adjusted EBITDA for the second quarter of fiscal 2023 was $6.8 million and non-GAAP earnings per diluted share was $0, as compared to $21.9 million and $0.78 for the second quarter of fiscal 2022.

BACKLOG

As of October 29, 2022, funded backlog (defined as remaining performance obligations under firm orders for which funding is currently appropriated to the Company under a customer contract) was $293.1 million, as compared to $210.8 million as of April 30, 2022. As of November 26, 2022, funded backlog was $388.2 million.

FISCAL 2023 — OUTLOOK FOR THE FULL YEAR

For the fiscal year 2023, the Company now expects revenue of between $505 million and $525 million, net income of between $8 million and $17 million, Non-GAAP adjusted EBITDA of between $84 million and $92 million, earnings per diluted share of between $0.33 and $0.65 and non-GAAP earnings per diluted share, which excludes amortization of intangible assets and other non-cash purchase accounting expenses, of between $1.26 and $1.58.

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

CONFERENCE CALL AND PRESENTATION

In conjunction with this release, AeroVironment, Inc. will host a conference call today, Tuesday, December 6, 2022, at 4:30 pm Eastern Time that will be webcast live. Wahid Nawabi, chairman, president and chief executive officer, Kevin P. McDonnell, chief financial officer and Jonah Teeter-Balin, senior director corporate development and investor relations, will host the call.

New this quarter, investors may access the call by registering via the following participant registration link up to ten minutes prior to the start time.

Participant registration URL: https://register.vevent.com/register/BI917865171ebf49738b3207daea259095

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