AeroVironment is a company that has been growing significantly this past year making military drones and robots. Their most well known drone is the Switchblade drone which has two models.
The quarterly revenue growth came in at 62% but there is a caveat that they acquired Tomahawk Robotics which builds AI enabled robotic control systems and open communication systems. My understand is that these systems allows other vendors to plug into their controller and communications.
The prior three quarters all have 40%+ revenue growth. If you go back further revenue growth is very stagnant, low single digits and a couple negative quarters. There’s a few major catalysts at play for the growth,
- There are nine different unmanned platforms deployed in Ukraine, “all receiving high levels of praise”
- Expanding sales to allied countries across the globe
- Backfilling US stock piles, and acquiring new DoD contracts
- Currently engaged with more then 20 countries who wish to receive Switchblades and 1/3rd of these companies actively in DoD export approval process
- Integrating Switchblades onto other vehicle platforms such as Abrams tanks, Humvees, helicoptors, and other vehicles
- Very large DoD contract where they were selected in the first wave to provide large quantities of Switchblades for multiple years
- Pipeline for Switchblade 300 and 600 “looks extremely promising”
- Have a large allocation set to fulfill obligations to Israel, Taiwan, and Ukraine (pending congressional approval)
It seems to me the TAM for their business is growing massively with many countries wanting their product. If it works that almost every other military vehicle will have these drones as a side accompaniment, there is a lot more growth to come. They seem to be a top choice for DoD, Ukraine, and many other countries lining up. There is zero mention of supply or capacity contraints even being an issue, and their ability to ramp production sounds strong.
Some other highlights from the last quarter report on December 5,
- Second quarter results “once again exceeded expectations”
- Very strong bottom line results powered by record demand
- Healthy backlog of 487M which is higher then start of the year and provides solid visibility for the Qs ahead
- Long term shift in military strategy for unmanned systems is a trend
- Ahead of schedule on fully integrating Tomahawk Robotics
- Expect that their cutting edge soltuions will be at the forefront of government decision making for years to come
- Unmanned segment more then doubled year over year
- Nearly completed delivering all of Ukraine’s last year FMS order
- Received additional follow on orders for Ukraine
- Portion of new orders for Ukraine are direct commerical sales; 42M award under the Ukraine Security Assistance Initiative
- Segment growth this quarter was due to record deliveries overseas
- Demand for our system is expanding
- Proposed legislation to support Ukraine, Israel and Taiwan which includes additional funding for Switchblade
- Consolidated GAAP gross margin was 42% up from 23% in prior year
- Adj EBITDA was 40M up from 7M year ago
- Adj EPS of $0.97 vs $0.01 year ago
- Net income of 17.8M versus -6.7M year ago
- SG&A expense 14% of rev compared to 17% previously, and R&D 12% now versus 15% last year
- Huge amount of research going on under contracts, including HAPS solar aircraft
- “Our nation and allies are realizing the immense value proposition”
- Tomahawk Robotics controller would allow to integrate other third party platforms, significant opportunities to integrate
- Switchblade gross margins and profitability is fairly strong and improving
- In the initial tranche of the LASSO program for DoD, “puts us in a very, very good position”
- “We’ve got a lot more upside on our Switchblade product lines over the next 6 to 12 months in terms of orders”
- Huge amount of research dollars means EPS will be lower in the second half which is projected by their guide. Seeing a step up in R&D for DARPA contract, SOAR program in US Army. Programs getting a lot of traction.
Overall I’m impressed with where AeroEnvironment stands right now. Sounds like a growing TAM with product expansion, and a lot of eager customers who cannot fill their quota fast enough. They are talking about clear visibility for increasing demand in the near term. It’s enough for me to start a position here and keep watching.