AVAV AeroVironment Inc

AeroVironment, Inc. (NASDAQ: AVAV) today reported financial results for its second quarter ended October 31, 2015.

“Strong performance in our core UAS business delivered a 23 percent increase in AeroVironment’s quarterly revenue year-over-year and a 76 percent increase in quarterly gross margin, including 19 percentage points from a government contract reserve reduction. Solid bookings of more than $66 million in UAS contracts and contract extensions further illustrate our team’s effectiveness during the quarter,” said Tim Conver, AeroVironment chairman and chief executive officer. "We also produced meaningful progress from of our investments in commercial UAS information services and Tactical Missile Systems that have positioned AeroVironment favorably for emerging opportunities in both sectors. In our EES segment, we have more narrowly focused our EV charging business on consumer and business solutions to drive more profitable long-term growth, and Hyundai became the seventh global automaker to select AeroVironment for electric vehicle charging systems.”

FISCAL 2016 SECOND QUARTER RESULTS

Revenue for the second quarter of fiscal 2016 was $64.7 million, up 23% from second quarter fiscal 2015 revenue of $52.7 million. The increase in revenue resulted from an increase in sales in our Unmanned Aircraft Systems (UAS) segment of $13.5 million, offset by a decrease in sales in our Efficient Energy Systems (EES) segment of $1.5 million.

Gross margin for the second quarter of fiscal 2016 was $31.5 million, up 76% from second quarter fiscal 2015 gross margin of $17.9 million. The increase in gross margin was due to an increase in product margin of $9.6 million and an increase in service margin of $4.1 million, both of which were impacted by a reserve reversal of $3.5 million for the settlement of prior year government incurred cost audits. As a percentage of revenue, gross margin increased to 49% from 34%.

Income from operations for the second quarter of fiscal 2016 was $6.9 million compared to loss from operations for the second quarter of fiscal 2015 of $4.1 million. The increase in income from operations was a result of an increase in gross margin of $13.7 million, offset by an increase in research and development (R&D) of $1.4 million and in selling, general & administrative (SG&A) expense of $1.3 million.

Other income, net, for the second quarter of fiscal 2016 was $0.1 million compared to other expense, net, for the second quarter of fiscal 2015 of $0.4 million.

Net income for the second quarter of fiscal 2016 was $4.4 million compared to net loss for the second quarter of fiscal 2015 of $2.9 million.

Earnings per diluted share for the second quarter of fiscal 2016 were $0.19 compared to loss per share for the second quarter of fiscal 2015 of $0.13. Loss per share for the second quarter of fiscal 2015 increased by $0.01 due to the decrease in fair value of the conversion option of our convertible bond investment and related sales of stock. There was no impact to earnings per share for the second quarter of fiscal 2016 for the convertible bond investment or sales of stock.

FISCAL 2016 YEAR-TO-DATE RESULTS

Revenue for the first six months of fiscal 2016 was $111.8 million, up 7% from first six months fiscal 2015 revenue of $104.5 million. The increase in revenue resulted from an increase in sales in our UAS segment of $12.5 million offset by a decrease in sales in our EES segment of $5.3 million.

Gross margin for the first six months of fiscal 2016 was $47.6 million, up 49% from first six months fiscal 2015 gross margin of $31.9 million. The increase in gross margin was due to an increase in service margin of $8.2 million and an increase in product margin of $7.5 million, both of which were impacted by a reserve reversal of $3.5 million for the settlement of prior year government incurred cost audits. As a percentage of revenue, gross margin increased to 43% from 31%.

Loss from operations for the first six months of fiscal 2016 was $2.2 million compared to loss from operations for the first six months of fiscal 2015 of $10.6 million. The decrease in loss from operations was a result of an increase in gross margin of $15.6 million, offset by an increase in research and development (R&D) expense of $4.1 million and in selling, general & administrative (SG&A) expense of $3.1 million.

Other expense, net, for the first six months of fiscal 2016 was $2.1 million compared to other income, net for the first six months of fiscal 2015 of $0.4 million. The increase in expense is primarily due to the recording of an other-than-temporary impairment loss on our CybAero equity securities.

Net loss for the first six months of fiscal 2016 was $2.6 million compared to net loss for the first six months of fiscal 2015 of $6.5 million.

Loss per share for the first six months of fiscal 2016 was $0.11 compared to loss per share for the first six months of fiscal 2015 of $0.29. Loss per share for the first six months of fiscal 2016 was increased by $0.06 due to both the impairment loss and loss on sale of our CybAero equity securities. Loss per share for the first six months of fiscal 2015 decreased by $0.01 due to the increase in fair value of the conversion option of our convertible bond investment and related sales of stock.

BACKLOG

As of October 31, 2015, funded backlog (unfilled firm orders for which funding is currently appropriated to us under a customer contract) was $97.2 million compared to $64.7 million as of April 30, 2015.

FISCAL 2016 — OUTLOOK FOR THE FULL YEAR

For fiscal 2016, the company continues to expect revenue of between $260 million and $280 million, and a gross profit margin of between 36 percent and 37.5 percent, net of reserve effect. Planned increases in strategic R&D and SG&A investments for Commercial UAS in fiscal 2016 may largely offset operating profit in the current fiscal year.

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 8, 2015, at 1:30 pm Pacific Time that will be broadcast live over the Internet. Timothy E. Conver, chairman and chief executive officer, Raymond D. Cook, chief financial officer and Steven A. Gitlin, vice president of investor relations, will host the call.

4:30 PM ET3:30 PM CT2:30 PM MT1:30 PM PT

Investors may dial into the call at (877) 561-2749 (U.S.) or (678) 809-1029 (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 8, 2015, at approximately 4:30 p.m. Pacific Time through Tuesday, December 15, 2015, at 9:00 p.m. Pacific Time. Dial (855) 859-2056 and enter the passcode 89717937. International callers should dial (404) 537-3406 and enter the same passcode number to access the audio replay.

ABOUT AEROVIRONMENT, INC.

AeroVironment is a technology solutions provider that designs, develops, produces, supports and operates an advanced portfolio of Unmanned Aircraft Systems (UAS) and electric transportation solutions. The company's electric-powered, hand-launched UASs generate and process data to deliver powerful insight, on-demand, to people engaged in military, public safety and commercial activities around the world. AeroVironment's electric transportation solutions include a comprehensive suite of electric vehicle (EV) charging systems, installation and network services for consumers, automakers, utilities and government agencies, power cycling and test systems for EV developers and industrial EV charging systems for commercial fleets. More information about AeroVironment is available at 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; 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; 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; 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 31,   November 1, October 31,   November 1, 2015   2014 2015   2014   Revenue: Product sales $ 49,492 $ 42,874 $ 76,131 $ 85,685 Contract services 15,239   9,790 35,650   18,845 64,731 52,664 111,781 104,530 Cost of sales: Product sales 24,802 27,779 41,567 58,576 Contract services 8,396   7,014 22,658   14,029 33,198 34,793 64,225 72,605 Gross margin: Product sales 24,690 15,095 34,564 27,109 Contract services 6,843   2,776 12,992   4,816 31,533 17,871 47,556 31,925 Selling, general and administrative 14,733 13,470 29,989 26,873 Research and development 9,897   8,531 19,728   15,655 Income (loss) from operations 6,903 (4,130 ) (2,161 ) (10,603 ) Other income (expense): Interest income 268 193 492 405 Other (expense) income (192 ) (583 ) (2,581 ) 8 Income (loss) before income taxes 6,979 (4,520 ) (4,250 ) (10,190 ) Provision (benefit) for income taxes 2,560   (1,619 ) (1,688 ) (3,680 ) Net Income (loss) $ 4,419   $ (2,901 ) $ (2,562 ) $ (6,510 ) Earnings (loss) per share data: Basic $ 0.19 $ (0.13 ) $ (0.11 ) $ (0.29 ) Diluted $ 0.19 $ (0.13 ) $ (0.11 ) $ (0.29 ) Weighted average shares outstanding: Basic 22,985,956 22,878,410 22,966,513 22,840,465 Diluted 23,148,456 22,878,410 22,966,513 22,840,465  

AeroVironment, Inc.

Reconciliation of Earnings (Loss) per Share (Unaudited)

    Three Months Ended Six Months Ended October 31,   November 1, October 31,   November 1, 2015 2014   2015   2014   Earnings (loss) per diluted share as adjusted $ 0.19 $ (0.12 ) $ (0.05 ) $ (0.30 ) Other-than-temporary impairment loss and loss on sale of stock — — (0.06 ) — (Decrease) increase in fair value of convertible bond and related sale of stock   —   (0.01 )   —     0.01   Earnings (loss) per diluted share as reported $ 0.19 $ (0.13 ) $ (0.11 ) $ (0.29 )  

AeroVironment, Inc.

Consolidated Balance Sheets

(In thousands except share data)

    October 31,2015 April 30,2015 (Unaudited) Assets Current assets: Cash and cash equivalents $ 128,032 $ 143,410 Short-term investments 77,967 85,381 Accounts receivable, net of allowance for doubtful accounts of $212 at October 31, 2015 and $606 at April 30, 2015 42,746 33,607 Unbilled receivables and retentions 11,798 17,356 Inventories, net 48,336 39,414 Income tax receivable 2,836 — Deferred income taxes 5,050 5,265 Prepaid expenses and other current assets 4,555 4,599 Total current assets 321,320 329,032 Long-term investments 37,715 46,769 Property and equipment, net 13,579 13,499 Deferred income taxes 6,725 7,426 Other assets 690 741 Total assets $ 380,029 $ 397,467 Liabilities and Stockholders’ Equity Current liabilities: Accounts payable $ 11,590 $ 19,243 Wages and related accruals 10,503 13,395 Income taxes payable — 692 Customer advances 3,835 4,235 Other current liabilities 5,669 9,170 Total current liabilities 31,597 46,735 Deferred rent 1,266 1,381 Liability for uncertain tax positions 439 439 Commitments and contingencies Stockholders’ equity: Preferred stock, $0.0001 par value: Authorized shares — 10,000,000; none issued or outstanding — — Common stock, $0.0001 par value: Authorized shares — 100,000,000 Issued and outstanding shares — 23,318,688 at October 31, 2015 and 23,314,640 at April 30, 2015 2 2 Additional paid-in capital 151,269 148,293 Accumulated other comprehensive loss (201 ) (1,358 ) Retained earnings 195,657 201,975 Total stockholders’ equity 346,727 348,912 Total liabilities and stockholders’ equity $ 380,029 $ 397,467  

AeroVironment, Inc.

Consolidated Statements of Cash Flows (Unaudited)

(In thousands)

  Six Months Ended October 31,2015   November 1,2014 Operating activities Net loss $ (2,562 ) $ (6,510 ) Adjustments to reconcile net loss to cash (used in) provided by operating activities: Depreciation and amortization 2,765 4,303 Impairment of available-for-sale securities 2,186 — Loss from equity method investments 122 98 Provision for doubtful accounts (231 ) (105 ) Deferred income taxes 215 42 Loss (gain) on sale of equity securities 219 (347 ) Stock-based compensation 2,082 1,745 Foreign currency losses 63 281 Increase in fair value of conversion feature of convertible bonds — (73 ) Tax benefit from exercise of stock options 196 11 Excess tax benefit from stock-based compensation — (348 ) Amortization of held-to-maturity investments 2,146 2,211 Changes in operating assets and liabilities: Accounts receivable (8,908 ) 748 Unbilled receivables and retentions 5,558 3,826 Inventories (8,922 ) (1,105 ) Income tax receivable (2,887 ) 1,708 Other assets 119 27 Accounts payable (7,653 ) 5,082 Other liabilities (7,417 ) 764 Net cash (used in) provided by operating activities (22,909 ) 12,358 Investing activities Acquisitions of property and equipment (2,804 ) (1,070 ) Equity method investments (186 ) (186 ) Purchases of held-to-maturity investments (43,072 ) (68,524 ) Redemptions of held-to-maturity investments 55,847 46,727 Sales of available-for-sale investments 987   9,038 Net cash provided by (used in) investing activities 10,772 (14,015 ) Financing activities Purchase and retirement of common stock (3,756 ) — Tax withholding payment related to net settlement of equity awards (29 ) — Excess tax benefit from exercise of stock options — 348 Exercise of stock options 544   679 Net cash (used in) provided by financing activities (3,241 ) 1,027 Net decrease in cash and cash equivalents (15,378 ) (630 ) Cash and cash equivalents at beginning of period 143,410   126,969 Cash and cash equivalents at end of period $ 128,032   $ 126,339   Supplemental disclosure: Unrealized change in fair value of investments recorded in other comprehensive income (loss), net of deferred taxes of $18 and $(397), respectively $ 27 $ 596 Reclassification from share-based liability compensation to equity $ 228 $ —  

AeroVironment, Inc.

Reportable Segment Results are as Follows (Unaudited):

(In thousands)

    Three Months Ended Six Months Ended October 31,   November 1, October 31,   November 1, 2015   2014 2015   2014 Revenue: UAS $ 56,589 $ 43,045 $ 96,756 $ 84,231 EES 8,142   9,619 15,025   20,299 Total 64,731   52,664 111,781   104,530 Cost of sales: UAS 28,314 27,575 54,780 58,590 EES 4,884   7,218 9,445   14,015 Total 33,198   34,793 64,225   72,605 Gross margin: UAS 28,275 15,470 41,976 25,641 EES 3,258   2,401 5,580   6,284 Total 31,533   17,871 47,556   31,925 Selling, general and administrative 14,733 13,470 29,989 26,873 Research and development 9,897   8,531 19,728   15,655 Income (loss) from operations 6,903 (4,130 ) (2,161 ) (10,603 ) Other income (expense): Interest income 268 193 492 405 Other (expense) income (192 ) (583 ) (2,581 ) 8 Income (loss) before income taxes $ 6,979   $ (4,520 ) $ (4,250 ) $ (10,190 )

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