AeroVironment Stock

AeroVironment, Inc. designs, develops, produces, delivers and supports a technologically-advanced portfolio of intelligent, multi-domain robotic systems and related services for government agencies and businesses. The company supplies unmanned aircraft systems (UAS), tactical missile systems (TMS), unmanned ground vehicles (UGV) and related services primarily to organizations within or supplying the U.S. Department of Defense (DoD), other federal agencies and to international allied governments.

The success of the company’s product and service offering stems from its investments in research and development to invent and deliver advanced solutions, utilizing proprietary and commercially available technologies, and in acquiring leading businesses that help its customers achieve their desired outcomes. The company develops and acquires these highly innovative solutions by working closely with its key customers to solve their most important challenges related to its areas of expertise. The company’s core technological capabilities, developed through more than 50 years of innovation, include robotics and robotics systems autonomy; modular open systems architecture, sensor design, development, miniaturization and integration; embedded software and firmware; miniature, low power, secure wireless digital communications and networks; lightweight aerostructures; high-altitude systems design, integration and operations; machine vision, machine learning and autonomy; land, maritime and air deployment of missile and aircraft systems; design and qualification for robotics in extreme terrestrial and space environments; missile systems warhead integration; low SWaP (Size, Weight and Power) system design and integration; collaborative multi-robotic manned and unmanned mission operation; power electronics and electric propulsion systems; efficient electric power conversion, storage systems and high density energy packaging; controls and systems integration; vertical takeoff and landing for fixed wing and hybrid aircraft and rotocraft systems; image stabilization and target tracking; advanced flight control systems; fluid dynamics; human-machine interface development; and integrated mission solutions for austere environments.

The company’s business focuses primarily on the design, development, production, marketing, support and operation of innovative UAS, TMS and UGV that provide situational awareness, remote sensing, multi-band communications, force protection and other information and mission effects to increase the safety and effectiveness of its customers’ operations.

Strategy

As a technology solutions provider, its strategy is to grow the company’s business by delivering innovative, safe and reliable multi-domain solutions and unique capabilities to its customers. The company intends to grow its business by preserving a leadership position in its core UAS, TMS and UGV markets and by creating or acquiring new solutions and capabilities that enable it to establish leadership positions in new markets. The key components of the company’s strategy are to expand the market penetration of existing products and services; deliver innovative new solutions into existing and new markets; preserve its agility and flexibility; effectively manage its growth portfolio for long-term value creation; and stay intimate with its key defense customers.

Customers

The company sells the majority of its UAS and services to organizations within the U.S. DoD, including the U.S. Army, Marine Corps, Special Operations Command, Air Force and Navy, and to allied governments, or to companies that serve these customers. The company sells its TMS and services to organizations within the U.S. DoD and allied military forces. The company sells its UGV and services to U.S. and allied government military and public safety agencies ,as well as to commercial entities. The company also develops High Altitude Pseudo-Satellite (HAPS) systems in conjunction with SoftBank Corp (SoftBank) and sells select products to the National Aeronautics and Space Administration (NASA).

During the company’s fiscal year ended April 30, 2023, it generated approximately 6% of its revenue from the U.S. Army pursuant to orders placed under contract by the U.S. Army on behalf of itself, as well as for several other organizations within the DoD. Other U.S. government agencies and government subcontractors accounted for 40% of the company’s sales revenue. Sales revenue to foreign customers, inclusive of foreign military sales made through the DoD, commercial and consumer customers accounted for the remaining 54% of sales revenue during its fiscal year ended April 30, 2023.

Technology, Research and Development

As of April 30, 2023, the company had issued and retained 278 U.S. patents, as well as 68 pending U.S. patent applications; 17 active Patent Cooperation Treaty applications; and numerous foreign patents and pending applications. In many cases, when appropriate and to preserve confidentiality, the company opts to protect its intellectual property through trade secrets as opposed to filing for patent protection.

Sales and Marketing

The company has many U.S. registered trademarks, including those for AeroVironment, AV, Switchblade, Raven, Wasp, Quantix, VAPOR, Arcturus UAV, Crysalis and Jump and have several pending applications for trademark registration.

International Sales

The company contracts with international sales representatives and team with domestic organizations across a number of foreign markets which represent growth opportunities for its business. The company’s international sales, inclusive of foreign military sales, accounted for approximately 53% of its revenue for the fiscal years ended April 30, 2023.

Customer-Funded R&D

The company actively pursues externally funded projects that help it strengthen its technological capabilities. The company submits bids to large research customers, such as the Defense Advanced Research Projects Agency (DARPA), the U.S. Air Force, the U.S. Army and the U.S. Special Operations Command, for projects that have the potential for future procurement.

Seasonality

Historically, revenue in the second half of the company’s fiscal years (year ended April 30, 2023) has exceeded revenue in the first half. The factors that affect the company’s revenue recognition between accounting periods include the timing of new contract awards, the availability of the U.S. government and international government funding, lead time to manufacture its systems to customer specification, customer acceptance and other regulatory requirements.

The company’s business addresses the increasing value of intelligent, multi-domain robotic systems providing distributed, network-centric intelligence, surveillance and reconnaissance (ISR), communications, remote sensing, effects delivery and remote materials handling with innovative UAS, TMS and UGV solutions. With respect to the defense applications for these technologies, nearly 20 years of counterinsurgency operations in regions where the U.S. and allied forces benefit from air and technical superiority have driven the demand for a variety of unmanned systems in the air and on the ground.

Solutions

The company supplies its UAS and UGV products and services to multiple customers within and outside of the United States, as well as supply its TMS products and services to defense related organizations within the U.S. government and allied nations.

SUAS Products

The company’s SUAS products, including Raven, Wasp AE, Puma AE, Puma LE, and VAPOR MX are designed to operate reliably at low altitudes in a wide range of environmental conditions, providing a vantage point from which to collect and deliver valuable information to end users. These reusable systems are easy to transport, assemble and operate and are relatively quiet when flying at operational altitudes, as a result of its efficient electric propulsion systems. Furthermore, their small size makes them difficult to see from the ground in daytime environments using no optical enhancing tools. More recently, the company’s SUAS have been upgraded to be more resilient against more sophisticated adversaries by introducing technologies which allow for safe operation, and mission continuation, of SUAS in contested environments, such as loss of GPS or RF contested environments.

In military applications, the company’s SUAS provide forward aerial observation capabilities that enable tactical commanders to observe, for example, around the next corner, to the next intersection or past a ridgeline in real time. This information facilitates faster, safer movement through urban, rural, riverine and mountainous environments. These systems also provide greater situational awareness on the battlefield and enable troops to proactively identify, track, and prosecute targets of interest rather than being reactive to attack. Moreover, by providing this information, the company’s systems reduce the risk to warfighters and to the surrounding population by providing the ability to tailor the military response to the threat.

Certain systems within the company’s SUAS portfolio utilize its common and interoperable handheld Crysalis ground control system and an array of spare parts and accessories. The ground control system serves as the primary interface between the operator and the company’s SUAS and allows the operator of each system to control the direction, speed and altitude of the aircraft, as well as the orientation of the sensors to view the visual information they produce through real time, streaming video and metadata. The Crysalis system provides a refreshed user experience and allows the company’s SUAS to interoperate with other customer assets to further enhance the warfighters ability to counter threats.

MUAS Products

Providing similar capabilities to the company’s SUAS, its field-deployable MUAS, including T-20 and JUMP 20, deliver extended endurance and expanded payload capacity to support a broader set of missions that benefit from aerial surveillance and the use of specialized payloads. The internal combustion engine powered T-20 and JUMP 20 offer significantly greater endurance and payload capacity than its SUAS, with larger airframes that can also accommodate a wider variety of payloads. The JUMP 20 launches and lands vertically as a result of its vertical take-off and landing (VTOL) rotors, minimizing the amount of space required for its operation and eliminating the need for a runway. The T-20 launches from a catapult, lands on a short runway and provides more than 24 hours of endurance. In the past, the company operated its MUAS, such as Jump 20 in overseas locations to support the U.S. military operations under ISR services contracts under a contractor-owned, contractor-operated (COCO) arrangement. Under these services contracts, the company operated its MUAS in specific locations and delivered the information its MUAS produce on an hourly basis to its customers, who then used that information to support their missions. During the year ended April 30, 2023, all of the company’s MUAS COCO sites have been closed.

Tactical Missile Systems Products

The company’s TMS consist of tube-launched aircraft that deploy with the push of a button, fly at higher speeds than its SUAS, and perform either effects delivery or reconnaissance missions. Switchblade 300, the first of its TMS products, can be transported in its launch tube, within a backpack, and deployed within minutes to defend against lethal threats, such as snipers and mortar launchers. With a high level of precision, including a customized warhead, patented wave-off, loiter and re-engagement capabilities, Switchblade 300 can neutralize a target rapidly and accurately without causing collateral damage. Furthermore, because it streams live electro-optical and thermal video to its operator, Switchblade 300 can be called off in the final moments prior to a strike should the situation require, potentially eliminating damage to non-combatants. Switchblade 600 is a larger version of Switchblade 300 that can fly for a longer period of time and over a longer distance while carrying a larger, more powerful, anti-armor warhead. Blackwing, a variant of Switchblade 300, launches from a submerged submarine and carries extra batteries instead of a warhead, providing longer flight time for extended maritime reconnaissance operations.

Unmanned Ground Vehicle Products

The company’s UGV support a variety of missions and applications, ranging from explosive ordnance disposal to hazardous materials handling and law enforcement operations. All its UGVs feature secure communications, multi-axis manipulators and automatic tool exchange, which eliminates the need for the UGV to return to its operator to switch the tool attached to its manipulator arm. The company also offers fully equipped service vehicles for the transport, service and operation of its UGV solutions. The company’s UGVs feature the intuitive and operationally simplified Robo Command Ground control stations with multi-touch screen, pre-programmed motion sequences and ergonomically designed hand controllers for precision control of the robot, manipulator and accessories.

MacCready Works

With a focus on the future, this group of select, visionary scientists and engineers partners with the company’s diverse customer base to explore innovative breakthrough solutions to difficult challenges.

Support Services

In support of its products, the company offers a suite of services that help to ensure the successful operation of its products by its customers. These services generate incremental revenue for the company and provides it with continuous feedback to understand the performance of its systems, anticipates its customers’ needs and develop additional customer insights. The company provides spare parts, as well as repair, refurbishment and replacement services in a manner that seeks to minimize supply chain delays and support its customers whenever and wherever needed.

The company provides comprehensive training services to support all its SUAS and TMS for defense applications. The company’s highly-skilled instructors typically have extensive military experience. The company deploys training teams throughout the continental United States and overseas to support its customers’ training needs on both production and development-stage systems.

Customer-Funded R&D

The company provides specialized services in support of customer-funded R&D projects, delivering new value-added technology solutions to its customers. These types of projects typically involve developing new system solutions and technology or new capabilities for existing solutions that the company introduces as retrofits or upgrades. The company recognizes the majority of customer-funded R&D projects as revenue.

Sales and Marketing

The company’s Product Line Management organization translates customer and market requirements into multi-year product roadmaps that guide its development, engineering and manufacturing plans. The company organizes its the U.S. business development team members by product line, target market and customer, and it locates team members in close proximity to the customers they support when possible. The company organizes its program managers by product and focus on designing optimal solutions and improving contract fulfillment, incorporating feedback from customers and users.

Competition

The company’s principal SUAS competitors include Elbit Systems Ltd.; Quantum Systems; Edge Autonomy; Teledyne Technologies, Inc.; and Lockheed Martin Corporation. The company’s principal MUAS competitors are The Boeing Company’s ScanEagle and Textron Inc.’s Shadow UAS, as well as those competing for the U.S. Army’s Future Tactical UAS (FTUAS) program, including Shield AI and Northrop Grumman’s V-Bat, Textron, Inc.’s Aerosonde, Sierra Nevada Corporation’s Voly-T, Griffon Aerospace’s G2E and L3Harris Technologies’ FVR-90, and international competitors Elbit Systems Ltd. and Israeli Aircraft Industries. The company’s TMS business faces competition from Textron Inc.; Raytheon Technologies; Lockheed Martin Corporation; Anduril Industries; Aevex Aerospace; and UVision Air Ltd. The company’s competitors in the U.S. defense market for UGVs include L3Harris Technologies, Inc.; Teledyne Technologies, Inc.; QinetiQ North America, Inc.; Peraton/Remotec; ICOR Technology; and Boston Dynamics.

Research and Development

The company’s research and Development expense for the fiscal year ended April 30, 2023, included $64.3 million.

Regulation

Due to the fact that it contracts with the DoD and other agencies of the U.S. government, the company is subject to extensive federal regulations, including the Federal Acquisition Regulations, Defense Federal Acquisitions Regulations, Truth in Negotiations Act, Foreign Corrupt Practices Act, False Claims Act and the regulations promulgated under the DoD Industrial Security Manual, which establishes the security guidelines for classified programs and facilities, as well as individual security clearances. Like most government contractors, the company’s contracts are audited and reviewed on a continual basis by federal agencies, including the Defense Contract Management Agency (DCMA) and the Defense Contract Audit Agency (DCAA).

For example, certain aspects of the company’s business are subject to further regulation by additional U.S. government authorities, including the Federal Aviation Administration (FAA), which regulates airspace for all air vehicles in the U.S. National Airspace System; the National Telecommunications and Information Administration and the Federal Communications Commission, which regulate the wireless communications upon which its UAS depend in the United States; and the Defense Trade Controls of the U.S. Department of State that administers the International Traffic in Arms Regulations, which regulate the export of controlled technical data, defense articles and defense services. The company sells the significant majority of its small UAS, MUAS and TMS products and services under contracts with the U.S. government.

History

AeroVironment, Inc. was founded in 1971. The company was incorporated in the state of California in 1971 and reincorporated in Delaware in 2006.