Release Details

MONROVIA, Calif.--(BUSINESS WIRE)-- AeroVironment, Inc. (NASDAQ: AVAV) today reported financial results for its second quarter ended October 28, 2017.

"Our outstanding team delivered another solid quarter of financial and operational results driven by robust, global customer demand across our business and continued effective execution," said Wahid Nawabi, AeroVironment Chief Executive Officer. "During the quarter we increased revenue by 47 percent, year over year, and substantially improved earnings per diluted share to $0.29. Our innovative solutions continue to lead their markets, as orders for products and customer-funded research and development programs boosted our funded backlog to $127 million, a 49 percent increase over last quarter, significantly increasing our revenue visibility for the current fiscal year."

"Additionally, in August the United States Army released its annual Superior Supplier Incentive Program ranking, which identifies its top performing industry partners for 2017. AeroVironment earned the Army's top tier in this year's ranking, based on superior performance in our small UAS and Tactical Missile Systems businesses. This recognition is a testament to the hard work and dedication of our entire team. Our strong second quarter results reflect continued momentum in fiscal 2018 as we execute our plan effectively and focus on creating value for our stockholders, employees and customers."

FISCAL 2018 SECOND QUARTER RESULTS

Revenue for the second quarter of fiscal 2018 was $73.8 million, an increase of 47% from second quarter fiscal 2017 revenue of $50.1 million. The increase in revenue resulted from an increase in sales in our Unmanned Aircraft Systems (UAS) segment of $23.2 million and an increase in sales in our Efficient Energy Systems (EES) segment of $0.6 million.

Gross margin for the second quarter of fiscal 2018 was $31.0 million, an increase of 78% from second quarter fiscal 2017 gross margin of $17.4 million. The increase in gross margin was primarily due to an increase in product margin of $12.8 million and an increase in service margin of $0.8 million. As a percentage of revenue, gross margin increased to 42% from 35%. The increase in gross margin percentage was primarily due to an increase in revenue and an increase in the proportion of product sales to total revenue.

Income from operations for the second quarter of fiscal 2018 was $9.3 million, an increase from second quarter fiscal 2017 loss from operations of $4.5 million. The increase in the year over year income from operations was primarily a result of an increase in gross margin of $13.6 million and a decrease in research and development (R&D) expense of $1.2 million, partially offset by an increase in selling, general and administrative (SG&A) expense of $1.1 million. During the second quarter of fiscal 2018, we recorded impairment charges totaling $1.0 million to the identifiable intangible assets and goodwill of Altoy, our Turkish majority owned subsidiary.

Other income, net, for the second quarter of fiscal 2018 was $0.4 million compared to other income, net of $0.3 million for the second quarter of fiscal 2017.

Provision for income taxes for the second quarter of fiscal 2018 was $2.8 million compared to a benefit for income taxes of $48,000 for the second quarter of fiscal 2017. The increase in provision for income taxes was primarily due to an increase in income before income taxes.

Net income attributable to AeroVironment for the second quarter of fiscal 2018 was $7.0 million, an increase from second quarter fiscal 2017 net loss of $4.2 million.

Earnings per diluted share for the second quarter of fiscal 2018 was $0.29 compared to loss per share for the second quarter fiscal 2017 of $0.18.

FISCAL 2018 YEAR-TO-DATE RESULTS

Revenue for the first six months of fiscal 2018 was $117.6 million, an increase of 36% from the first six months' fiscal 2017 revenue of $86.3 million. The increase in revenue resulted from an increase in sales in our UAS segment of $28.9 million and an increase in our EES segment of $2.3 million.

Gross margin for the first six months of fiscal 2018 was $42.6 million, an increase of 77% from the first six months' fiscal 2017 gross margin of $24.1 million. The increase in gross margin was due to an increase in product margin of $19.1 million, partially offset by a decrease in service margin of $0.6 million. As a percentage of revenue, gross margin increased to 36% from 28%. The increase in gross margin percentage was primarily due to an increase in revenue and an increase in the proportion of product sales to total revenue.

Income from operations for the first six months of fiscal 2018 was $1.1 million, an increase from the first six months of fiscal 2017 loss from operations of $20.1 million. The increase in income from operations was a result of an increase in gross margin of $18.5 million and a decrease in R&D expense of $3.4 million, partially offset by an increase in SG&A expense of $0.7 million.

Other income, net, for the first six months of fiscal 2018 was $0.9 million compared to other income, net, for the first six months of fiscal 2017 of $0.3 million.

Benefit for income taxes for the first six months of fiscal 2018 was $0.4 million compared to a benefit for income taxes of $3.9 million for the first six months of fiscal 2017. The decrease in benefit for income taxes was primarily due to an increase in income before income taxes.

Net income attributable to AeroVironment for the first six months of fiscal 2018 was $2.6 million, an increase from the first six months of fiscal 2017 net loss of $15.8 million.

Earnings per diluted share for the first six months of fiscal 2018 was $0.11 compared to loss per share for the first six months of fiscal 2017 of $0.69.

BACKLOG

As of October 28, 2017, funded backlog (unfilled firm orders for which funding is currently appropriated to us under a customer contract) was $127.1 million compared to $78.0 million as of April 30, 2017.

FISCAL 2018 — OUTLOOK FOR THE FULL YEAR

For fiscal 2018, the company continues to expect to generate revenue of between $280 million and $300 million, and earnings per diluted share of between $0.45 and $0.65.

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

CONFERENCE CALL

In conjunction with this release, AeroVironment, Inc. will host a conference call today, Tuesday, December 5, 2017, at 1:30 pm Pacific Time that will be broadcast live over the Internet. Wahid Nawabi, president and chief executive officer, Teresa P. Covington, chief financial officer and Steven A. Gitlin, vice president of investor relations, will host the call.

4:30 PM ET
3:30 PM CT
2:30 PM MT
1:30 PM PT

Investors may dial into the call at (800) 708-4540 (U.S.) and enter the passcode 46018097 or (847) 619-6397 (international) five to ten minutes prior to the start time to allow for registration.

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

Audio Replay Options

An audio replay of the event will be archived on the Investor Relations page of the company's website, at http://investor.avinc.com. The audio replay will also be available via telephone from Tuesday, December 5, 2017, at approximately 4:00 p.m. Pacific Time through Tuesday, December 12, 2017, at 11:59 p.m. Pacific Time. Dial (888) 843-7419 and enter the passcode 46018097. International callers should dial (630) 652-3042 and enter the same passcode number to access the audio replay.

ABOUT AEROVIRONMENT, INC.

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

FORWARD-LOOKING STATEMENTS

This press release contains "forward-looking statements" as that term is defined in the Private Securities Litigation Reform Act of 1995. Forward-looking statements include, without limitation, any statement that may predict, forecast, indicate or imply future results, performance or achievements, and may contain words such as "believe," "anticipate," "expect," "estimate," "intend," "project," "plan," or words or phrases with similar meaning. Forward-looking statements are based on current expectations, forecasts and assumptions that involve risks and uncertainties, including, but not limited to, economic, competitive, governmental and technological factors outside of our control, that may cause our business, strategy or actual results to differ materially from the forward-looking statements. Factors that could cause actual results to differ materially from the forward-looking statements include, but are not limited to, reliance on sales to the U.S. government; availability of U.S. government funding for defense procurement and R&D programs; changes in the timing and/or amount of government spending; risks related to our international business, including compliance with export control laws; potential need for changes in our long-term strategy in response to future developments; unexpected technical and marketing difficulties inherent in major research and product development efforts; the impact of potential security and cyber threats; changes in the supply and/or demand and/or prices for our products and services; the activities of competitors and increased competition; failure of the markets in which we operate to grow; uncertainty in the customer adoption rate of commercial use unmanned aircraft systems and electric vehicles; failure to remain a market innovator and create new market opportunities; changes in significant operating expenses, including components and raw materials; failure to develop new products; the extensive regulatory requirements governing our contracts with the U.S. government; product liability, infringement and other claims; changes in the regulatory environment; and general economic and business conditions in the United States and elsewhere in the world. For a further list and description of such risks and uncertainties, see the reports we file with the Securities and Exchange Commission. We do not intend, and undertake no obligation, to update any forward-looking statements, whether as a result of new information, future events or otherwise.

AeroVironment, Inc.
Consolidated Statements of Operations (Unaudited)
(In thousands except share and per share data)
		Three Months Ended								Six Months Ended
		October 28,				October 29,				October 28,				October 29,
		2017				2016				2017				2016
Revenue:
Product sales		$	52,933			$	29,350			$	84,024			$	45,087
Contract services			20,894				20,766				33,567				41,247
			73,827				50,116				117,591				86,334
Cost of sales:
Product sales			30,014				19,197				54,231				34,419
Contract services			12,813				13,502				20,730				27,815
			42,827				32,699				74,961				62,234
Gross margin:
Product sales			22,919				10,153				29,793				10,668
Contract services			8,081				7,264				12,837				13,432
			31,000				17,417				42,630				24,100
Selling, general and administrative			14,464				13,387				27,795				27,050
Research and development			7,272				8,517				13,733				17,117
Income (loss) from operations			9,264				(4,487	)			1,102				(20,067	)
Other income (expense):
Interest income, net			432				397				944				772
Other expense, net			(55	)			(130	)			(51	)			(430	)
Income (loss) before income taxes			9,641				(4,220	)			1,995				(19,725	)
Provision (benefit) for income taxes			2,829				(48	)			(351	)			(3,911	)
Net income (loss)			6,812			$	(4,172	)			2,346				(15,814	)
Net loss attributable to noncontrolling interest			206				—				229				—
Net income (loss) attributable to AeroVironment		$	7,018			$	(4,172	)		$	2,575			$	(15,814	)
Net income (loss) per share attributable to AeroVironment:
Basic		$	0.30			$	(0.18	)		$	0.11			$	(0.69	)
Diluted		$	0.29			$	(0.18	)		$	0.11			$	(0.69	)
Weighted average shares outstanding:
Basic			23,477,914				23,049,056				23,407,500				23,002,832
Diluted			23,832,959				23,049,056				23,715,997				23,002,832

AeroVironment, Inc.
Consolidated Balance Sheets
(In thousands except share data)
		October 28,				April 30,
		2017				2017
		(Unaudited)
Assets
Current assets:
Cash and cash equivalents		$	117,109			$	79,904
Short-term investments			110,751				119,971
Accounts receivable, net of allowance for doubtful accounts of $1,201 at October 28, 2017 and $291 at April 30, 2017			35,106				74,361
Unbilled receivables and retentions			13,494				14,120
Inventories, net			76,039				60,076
Prepaid expenses and other current assets			5,175				5,653
Total current assets			357,674				354,085
Long-term investments			33,024				42,096
Property and equipment, net			21,614				19,220
Deferred income taxes			16,113				15,089
Other assets			838				2,010
Total assets		$	429,263			$	432,500
Liabilities and stockholders' equity
Current liabilities:
Accounts payable		$	15,724			$	20,283
Wages and related accruals			10,415				12,966
Income taxes payable			350				1,418
Customer advances			3,921				3,317
Other current liabilities			7,441				10,079
Total current liabilities			37,851				48,063
Deferred rent			1,637				1,719
Capital lease obligations - net of current portion			50				161
Other non-current liabilities			184				184
Deferred tax liability			67				116
Liability for uncertain tax positions			64				64
Commitments and contingencies
Stockholders' equity:
Preferred stock, $0.0001 par value:
Authorized shares—10,000,000; none issued or outstanding at October 28, 2017 and April 30, 2017			—				—
Common stock, $0.0001 par value:
Authorized shares—100,000,000
Issued and outstanding shares—23,865,335 shares at October 28, 2017 and 23,630,419 at April 30, 2017			2				2
Additional paid-in capital			166,993				162,150
Accumulated other comprehensive loss			(98	)			(127	)
Retained earnings			222,504				219,929
Total AeroVironment stockholders' equity			389,401				381,954
Noncontrolling interest			9				239
Total equity			389,410				382,193
Total liabilities and stockholders' equity		$	429,263			$	432,500

AeroVironment, Inc.
Consolidated Statements of Cash Flows (Unaudited)
(In thousands)
		Six Months Ended
		October 28,				October 29,
		2017				2016
Operating activities
Net income (loss)		$	2,346			$	(15,814	)
Adjustments to reconcile net income (loss) to cash provided by (used in) operating activities:
Depreciation and amortization			3,692				3,401
Loss from equity method investments			—				111
Impairment of long-lived assets			255				—
Provision for doubtful accounts			943				119
Impairment of intangible assets and goodwill			1,021				—
(Gains) losses on foreign currency transactions			(108	)			269
Deferred income taxes			(1,093	)			(329	)
Stock-based compensation			2,608				1,813
Tax benefit from exercise of stock options			—				22
Loss (Gain) on disposition of property and equipment			15				(7	)
Amortization of held-to-maturity investments			897				1,259
Changes in operating assets and liabilities:
Accounts receivable			38,440				29,562
Unbilled receivables and retentions			626				2,029
Inventories			(15,963	)			(17,682	)
Income tax receivable			—				(3,957	)
Prepaid expenses and other assets			468				(555	)
Accounts payable			(4,739	)			1,413
Other liabilities			(5,289	)			(7,933	)
Net cash provided by (used in) operating activities			24,119				(6,279	)
Investing activities
Acquisition of property and equipment			(6,037	)			(4,514	)
Redemptions of held-to-maturity investments			105,758				53,961
Purchases of held-to-maturity investments			(88,763	)			(79,052	)
Proceeds from the sale of property and equipment			—				7
Sales and redemptions of available-for-sale investments			450				400
Net cash provided by (used in) investing activities			11,408				(29,198	)
Financing activities
Principal payments of capital lease obligations			(173	)			(192	)
Tax withholding payment related to net settlement of equity awards			(313	)			—
Exercise of stock options			2,164				258
Net cash provided by financing activities			1,678				66
Net increase (decrease) in cash and cash equivalents			37,205				(35,411	)
Cash and cash equivalents at beginning of period			79,904				124,287
Cash and cash equivalents at end of period		$	117,109			$	88,876
Supplemental disclosures of cash flow information
Cash paid during the period for:
Income taxes		$	1,803			$	1,786
Non-cash activities
Unrealized gain on investments, net of deferred tax expense of $19 and $29, respectively		$	29			$	43
Reclassification from share-based liability compensation to equity		$	384			$	307
Acquisitions of property and equipment included in accounts payable		$	888			$	704

AeroVironment, Inc.
Reportable Segment Results are as Follows (Unaudited)
(In thousands)
		Three Months Ended								Six Months Ended
			October 28,				October 29,				October 28,				October 29,
			2017			2016					2017			2016
Revenue:
UAS		$	63,988			$	40,829			$	100,238			$	71,326
EES			9,839				9,287				17,353				15,008
Total			73,827				50,116				117,591				86,334
Cost of sales:
UAS			35,817				25,936				62,225				51,019
EES			7,010				6,763				12,736				11,215
Total			42,827				32,699				74,961				62,234
Gross margin:
UAS			28,171				14,893				38,013				20,307
EES			2,829				2,524				4,617				3,793
Total			31,000				17,417				42,630				24,100
Selling, general and administrative			14,464				13,387				27,795				27,050
Research and development			7,272				8,517				13,733				17,117
Income (loss) from operations			9,264				(4,487	)			1,102				(20,067	)
Other income (expense):
Interest income, net			432				397				944				772
Other expense, net			(55	)			(130	)			(51	)			(430	)
Income (loss) before income taxes		$	9,641			$	(4,220	)		$	1,995			$	(19,725	)

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AeroVironment, Inc.
Steven Gitlin
+1 (626) 357-9983
ir@avinc.com

Source: AeroVironment, Inc.

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