AVAV AeroVironment Inc

AeroVironment, Inc. (NASDAQ: AVAV) today reported financial results for its first quarter ended July 30, 2016.

“During the quarter we focused on executing our strategy and generated results in line with guidance and historical seasonality for our business,” said Wahid Nawabi, AeroVironment chief executive officer. “International demand for our small UAS remains strong, and we are confident in our ability to build on significant opportunities with existing and new customers, particularly in Europe and the Middle East. Domestically, we remain poised to capitalize on revenue opportunities for small UAS with the U.S. Department of Defense, and are on track with the development of our integrated commercial information solution.”

Mr. Nawabi added, “Our funded backlog increased 14%, even though certain bookings were delayed. Looking ahead, we expect a higher proportion of full year revenue in the second half of our year while working to achieve our fiscal 2017 goals. We are focused on executing our strategy to deliver high long-term growth with near-term progress in key initiatives.”

FISCAL 2017 FIRST QUARTER RESULTS

Revenue for the first quarter of fiscal 2017 was $36.2 million, a decrease from first quarter fiscal 2016 revenue of $47.1 million. The decrease in revenue resulted from a decrease in sales in our Unmanned Aircraft Systems (UAS) segment of $9.7 million and a decrease in sales in our Efficient Energy Systems (EES) segment of $1.2 million.

Gross margin for the first quarter of fiscal 2017 was $6.7 million, a decrease from first quarter fiscal 2016 gross margin of $16.0 million. The decrease in gross margin was primarily due to a decrease in product margin of $9.4 million. Service margins were consistent quarter over quarter. As a percentage of revenue, gross margin decreased from 34% to 18%. The decrease in gross margin percentage was primarily due to an increase in warranty related costs of $1.7 million related to certain small UAS delivered in prior periods, an increase in engineering and technical analyses costs related to existing products of $1.5 million, a decrease in product sales volume, which resulted in an increase in the per unit fixed manufacturing and engineering overhead support cost, and an unfavorable product mix.

Loss from operations for the first quarter of fiscal 2017 was $15.6 million, an increase from first quarter fiscal 2016 loss from operations of $9.1 million. Year over year loss from operations was a result of a decrease in gross margin of $9.3 million, partially offset by a decrease in selling, general and administrative (SGA) expense of $1.6 million and a decrease in research and development (R&D) expense of $1.2 million.

Other income, net, for the first quarter of fiscal 2017 was $0.1 million compared to other expense, net of $2.2 million for the first quarter of fiscal 2016. The decrease was primarily due to the recording of an other-than-temporary impairment loss on our CybAero equity securities during the three months ended August 1, 2015. The CybAero equity securities were sold during the second quarter of fiscal 2016.

Net loss for the first quarter of fiscal 2017 was $11.6 million compared to net loss for the first quarter of fiscal 2016 of $7.0 million. The tax benefit for the three months ended July 30, 2016 was primarily due to federal legislation reinstating the federal research and development tax credit during the three months ended January 30, 2016 and the reversal of a reserve for uncertain tax positions due to the settlement of prior fiscal year audits.

Loss per share for the first quarter of fiscal 2017 was $0.51 compared to loss per share for the first quarter of fiscal 2016 of $0.30. Loss per share for the first fiscal quarter of 2016 was impacted by both the impairment loss and losses on sales of our CybAero equity securities.

BACKLOG

As of July 30, 2016, funded backlog (unfilled firm orders for which funding is currently appropriated to us under a customer contract) was $74.7 million compared to $65.8 million as of April 30, 2016.

FISCAL 2017 — OUTLOOK FOR THE FULL YEAR

For fiscal 2017, the company remains committed to generating revenue of between $260 million and $280 million, and earnings per fully diluted share of between $0.20 and $0.35. Seasonally low first quarter revenue, lower than planned bookings and significant international opportunities requiring export license approval contribute to greater execution challenges.

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, August 30, 2016, at 1:30 pm Pacific Time that will be broadcast live over the Internet. Wahid Nawabi, president 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, August 30, 2016, at approximately 4:30 p.m. Pacific Time through Tuesday, September 6, 2016, at 9:00 p.m. Pacific Time. Dial (855) 859-2056 and enter the passcode 66874440. International callers should dial (404) 537-3406 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 recognized 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; 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 July 30,   August 1, 2016 2015   Revenue: Product sales $ 15,737 $ 26,639 Contract services 20,481 20,411 36,218 47,050 Cost of sales: Product sales 15,222 16,765 Contract services 14,313 14,262 29,535 31,027 Gross margin: Product sales 515 9,874 Contract services 6,168 6,149 6,683 16,023 Selling, general and administrative 13,663 15,256 Research and development 8,600 9,831 Loss from operations (15,580 ) (9,064 ) Other (expense) income: Interest income, net 375 224 Other expense, net (300 ) (2,389 ) Loss before income taxes (15,505 ) (11,229 ) Benefit for income taxes (3,863 ) (4,248 ) Net loss $ (11,642 ) $ (6,981 ) Loss per share data: Basic $ (0.51 ) $ (0.30 ) Diluted $ (0.51 ) $ (0.30 ) Weighted average shares outstanding: Basic 22,956,607 22,947,487 Diluted 22,956,607 22,947,487     AeroVironment, Inc. Reconciliation of Loss per Share (Unaudited)   Three Months Ended July 30,   August 1, 2016 2015 Loss per share as adjusted $ (0.51 ) $ (0.24 ) Other-than-temporary impairment loss and loss on sale of stock   —   (0.06 ) Loss per diluted share as reported $ (0.51 ) $ (0.30 )     AeroVironment, Inc. Consolidated Balance Sheets (In thousands except share data)     July 30,2016 April 30,2016 (Unaudited) Assets Current assets: Cash and cash equivalents $ 122,313 $ 124,287 Short-term investments 101,802 103,404 Accounts receivable, net of allowance for doubtful accounts of $433 at July 30, 2016 and $262 at April 30, 2016 32,635 56,045 Unbilled receivables and retentions 14,493 18,899 Inventories, net 44,105 37,486 Income tax receivable 4,250 — Prepaid expenses and other current assets 4,167 4,150 Total current assets 323,765 344,271 Long-term investments 33,097 33,859 Property and equipment, net 16,910 16,762 Deferred income taxes 15,104 15,016 Other assets 658 750 Total assets $ 389,534 $ 410,658 Liabilities and Stockholders’ Equity Current liabilities: Accounts payable $ 10,529 $ 17,712 Wages and related accruals 9,934 13,973 Income taxes payable — 943 Customer advances 2,416 2,544 Other current liabilities 12,708 11,173 Total current liabilities 35,587 46,345 Deferred rent 1,864 1,714 Capital lease obligations – net of current portion 357 449 Other non-current liabilities 184 184 Liability for uncertain tax positions 62 441 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 — 23,395,030 at July 30, 2016 and 23,359,925 at April 30, 2016 2 2 Additional paid-in capital 155,853 154,274 Accumulated other comprehensive loss (183 ) (201 ) Retained earnings 195,808 207,450 Total stockholders’ equity 351,480 361,525 Total liabilities and stockholders’ equity $ 389,534 $ 410,658     AeroVironment, Inc. Consolidated Statements of Cash Flows (Unaudited) (In thousands)   Three Months Ended July 30,2016   August 1,2015 Operating activities Net loss $ (11,642 ) $ (6,981 ) Adjustments to reconcile net loss to cash used in operating activities: Depreciation and amortization 1,653 1,402 Loss from equity method investments 72 65 Impairment of available-for-sale securities — 2,186 Provision for doubtful accounts 171 (147 ) Losses on foreign currency transactions 226 58 Loss on sale of equity securities — 145 Deferred income taxes — 203 Stock-based compensation 992 1,039 Tax benefit from exercise of stock options 22 196 Excess tax benefit from stock-based compensation — (95 ) Gain on disposition of property and equipment (7 ) — Amortization of held-to-maturity investments 661 1,149 Changes in operating assets and liabilities: Accounts receivable 23,019 5,549 Unbilled receivables and retentions 4,406 3,358 Inventories (6,619 ) (4,507 ) Income tax receivable (4,250 ) (5,569 ) Prepaid expenses and other assets (17 ) 710 Accounts payable (6,336 ) (6,299 ) Other liabilities (3,594 ) (3,766 ) Net cash used in operating activities (1,243 ) (11,304 ) Investing activities Acquisition of property and equipment (2,634 ) (906 ) Equity method investment — (85 ) Redemptions of held-to-maturity investments 28,820 37,507 Purchases of held-to-maturity investments (27,487 ) (22,970 ) Proceeds from the sale of property and equipment 7 — Sales and redemptions of available-for-sale investments 400 217 Net cash (used in) provided by investing activities (894 ) 13,763 Financing activities Excess tax benefit from stock-based compensation — 95 Principal payments of capital lease obligations (95 ) — Tax withholding payment related to net settlement of equity awards — (29 ) Exercise of stock options 258 515 Net cash provided by financing activities 163 581 Net (decrease) increase in cash and cash equivalents (1,974 ) 3,040 Cash and cash equivalents at beginning of period 124,287 143,410 Cash and cash equivalents at end of period $ 122,313 $ 146,450   Supplemental disclosures of cash flow information: Cash paid during the period for: Income taxes $ 1,786 $ 1,519 Non-cash activities Unrealized change in fair value of investments recorded in other comprehensive income (loss), net of deferred taxes of $12 and $1, respectively $ 18 $ 2 Reclassification from share-based liability compensation to equity $ 307 $ 228 Acquisitions of property and equipment included in accounts payable $ 321 $ —     AeroVironment, Inc. Reportable Segment Results are as Follows (Unaudited): (In thousands)   Three Months Ended July 30,   August 1, 2016 2015 Revenue: UAS $ 30,497 $ 40,167 EES 5,721 6,883 Total 36,218 47,050 Cost of sales: UAS 25,083 26,466 EES 4,452 4,561 Total 29,535 31,027 Gross margin: UAS 5,414 13,701 EES 1,269 2,322 Total 6,683 16,023 Selling, general and administrative 13,663 15,256 Research and development 8,600 9,831 Loss from operations (15,580 ) (9,064 ) Other (expense) income: Interest income, net 375 224 Other expense, net (300 ) (2,389 ) Loss before income taxes $ (15,505 ) $ (11,229 )    

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