AeroVironment Inc (AVAV) 2021 Q4 法說會逐字稿

Good afternoon, ladies and gentlemen, and welcome to AeroVironment's Fourth Quarter and Full Fiscal Year 2021 Earnings Call.

This is Steven Gitlin, Chief Marketing Officer and Vice President of Investor Relations for AeroVironment.

(Operator Instructions) As a reminder, this conference is being recorded for replay purposes.

Before we begin, please note that on this call, certain information presented contains forward-looking statements within the meaning of 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.

For further information on these risks, we encourage you to review the risk factors discussed in AeroVironment's periodic reports on Form 10-K and Form 10-Q filed with the SEC, and the Form 8-K filed today with the SEC, along with the associated earnings release and the safe harbor statement contained therein.

This afternoon, we also filed a slide presentation with our earnings release and posted the presentation on our website at avinc.com in the Events & Presentations section.

The content of this conference call contains time-sensitive information that is accurate only as of today, June 29, 2021.

The company undertakes no obligation to make any revision to any forward-looking statements contained in our remarks today or to update them to reflect the events or circumstances occurring after this conference call.

Joining me today from AeroVironment are President and Chief Executive Officer, Mr. Wahid Nawabi; and Senior Vice President and Chief Financial Officer, Mr. Kevin McDonnell.

We will now begin with remarks from Wahid Nawabi.

Wahid?

Thank you, Steve.

Welcome to our fourth quarter and full fiscal year 2021 earnings conference call.

On today's call, I will emphasize an important message, included on Slide #3 of our earnings presentation.

That message is this: AeroVironment again delivered on its financial, operational and strategic commitments despite the continued macroeconomic challenges.

In fiscal year 2021, we applied AeroVironment's unique value proposition of innovation, customer intimacy and agility to help our customers succeed.

We're proud to have delivered a fourth consecutive year of profitable revenue growth in the midst of the global pandemic.

We deployed our balance sheet to expand our solutions portfolio and the value of our addressable markets.

We successfully executed our growth strategy and created significant value for our 3 key stakeholders: our customers, employees and shareholders.

And the demand and preference for our innovative, reliable and battle-proven solutions remained strong, reflecting our continued global leadership in our chosen market segments.

Today, I will summarize our fiscal year 2021 performance and discuss our achievements during the fourth quarter and full fiscal year.

Next, Kevin will provide a more detailed summary of our financial performance in the year, and then I will follow up with a brief discussion on our goals for fiscal year 2022 before Kevin, Steve and I take your questions.

Now let's move to our fiscal year highlights included on Slide #4.

Our team has done an incredible job of staying focused on serving our customers and delivering profitable top line growth, despite a full fiscal year operating during the COVID-19 pandemic.

We produced record fourth quarter revenue of $136 million and record full year revenue of $395 million.

Full fiscal year revenue increased by 7.5%, including contributions from the Arcturus UAV and ISG businesses acquired in the year, which I will discuss in a few moments.

While we were able to manage the majority of supply chain issues during the pandemic, some isolated issues prevented us from achieving our revenue objectives for the fourth quarter and the full fiscal year, leaving us slightly below our guidance range.

Full year diluted earnings per share were $0.96 compared to $1.72 for fiscal year 2020.

Fiscal year 2021 included an impairment of $8.4 million related to HAPSMobile's investments in LOON LLC and $9.3 million for legal accrual related to our former EES business.

Non-GAAP earnings per diluted share for fiscal year 2021 were $2.10 compared to $1.84 for fiscal year 2020, an increase of 14%.

Record fiscal year ending funded backlog of $211.8 million rose slightly from the prior year.

I commend the entire AeroVironment team for adapting to new ways of working during the pandemic and achieving these solid financial results while also acquiring 3 new businesses and successfully integrating them into our portfolio.

Now I will review our business achievements in fiscal year 2021.

The First and foremost, in fiscal year 2021, we significantly reshaped our portfolio by acquiring Arcturus UAV, Telerob and Progeny Systems ISG.

These acquisitions further expand our offering to provide our customers a portfolio of intelligent multi-domain robotic systems.

Beyond defense markets, we're also able to deliver valuable solutions, combining air and ground robotic systems to first responders, infrastructure managers, homeland security personnel and others.

Supporting the broader adoption of UAS for commercial use, we were recently appointed to an FAA advisory rule-making committee focused on beyond visual line of sight operations.

This ensures we remain in a position to provide recommendations that drive adoption of UAS in the United States.

As a result of our strategic acquisitions, we now organize our portfolio in 6 product lines, which I will now describe.

First, our small Unmanned Aircraft Systems product line represented 60% of total revenue in the fiscal year or $236 million.

We continue to secure new procurements and support awards for U.S. and some of our more than 50 international allied customers, reflecting our continued global leadership in this category.

During the fiscal year, we received a number of contract awards that included more than $20 million from the U.S. Army for Raven radio frequency modification and a number of recruitment awards from international allies for Raven and Puma and for support services.

In total, our small UAS product line generated approximately $111 million in international revenue during the year, a 6% increase over fiscal year 2020.

Second, our new medium UAS product line is the result of our acquisition of Arcturus UAV, a provider of Group 2 and 3 UAS and services.

This transaction closed in our fourth quarter, and the product line contributed 4%, or $16 million of full fiscal year revenue.

Our MUAS product line addresses a market segment that is even larger than the small UAS opportunity, and the team continued to support our USSOCOM customer on its MEUAS IV services contract.

As a reminder, under this contract, AeroVironment provides ISR services to our customers at their overseas basis.

This is a contractor owned, contractor operated, or COCO, business model in which our personnel operate our JUMP 20 VITAL fixed wing hybrid systems and provide customers with the actionable intelligence they generate.

During the fiscal year, we also secured an extension award for one of the customer locations and are gaining share in this program, reflecting our strong operational performance and value proposition.

Our JUMP 20 system is also a leading candidate for the U.S. Army's Future Tactical UAS, or FTUAS program.

In February, we participated in the Army's FTUAS Rodeo showcase and successfully demonstrated the advanced capabilities of the JUMP 20 to Army officials.

We remain confident in our positioning for the FTUAS program and expect the customer to announce prototype awards in calendar year 2022, and procurement awards as soon as government fiscal year 2023.

Third, our Tactical Missile Systems product line represented 22% of fiscal year 2021 revenue, or $87 million.

During the fiscal year, we secured a new Switchblade 300 procurement award of $45 million under the U.S. Army's $146 million LMAMS contract and a separately funded logistics support award worth up to $41 million over 3 years for that program.

Importantly, the U.S. government granted its first export approval for Switchblade 300 procurement by an allied nation, an order we expect to deliver before the end of fiscal year 2022.

We continue to work with additional Allied customers who are interested in Switchblade 300's unique capabilities.

During the fiscal year, we also introduced the Switchblade 600.

The USSOCOM awarded AeroVironment a $26 million contract for Switchblade 600 in April.

This award is for integration of Switchblade 600 into specialized naval vessels, highlighting the multi-domain capabilities of this unique solution.

While we do not win the Marine Corps OPF-M Phase 2 RDT&E award, we are continuing to track and pursue this and other U.S. DoD programs.

Additionally, we will be delivering Switchblade 600 units this fiscal year to another customer who continues to move forward with low-rate initial production and operational deployment of this capability.

We're confident in our potential to continue to grow and succeed across our portfolio.

And adding to the multi-domain applications for our TMS product line, the U.S. Navy announced their intent to order up to 120 of our Blackwing Reconnaissance Systems for the Submarine-Launched Unmanned Aerial systems, or SLUAS program, as part of its ongoing effort to adopt Blackwing across its submarine fleet.

In other platform integration opportunities, we continue to work with General Dynamics Land Systems on the integration of small UAS and Switchblade into their next-generation armored vehicles.

The recent conflict between Azerbaijan and Armenia highlighted the game-changing capability of armed UAS and loitering missiles to neutralize traditional armored assets.

AeroVironment remains at the forefront of this disruptive capability and stands ready to support our military and our allies with patented, battle-proven loitering missile solutions.

Fourth, our new unmanned ground vehicles, or UGV product line, represents Telerob, the German leader in ground robotic solutions that we acquired in early May.

Since we have not closed the transaction prior to the end of our fiscal year 2021, we're not reporting Telerob's financial results for the fiscal year.

We retained all Telerob employees, including their leadership team, and we're actively pursuing a number of new programs and cross-selling opportunities in the U.S. and internationally.

We're still waiting for the U.S. Air Force to announce a decision on its large EOD robotics contract.

Fifth, our HAPS product line represented 11% of fiscal year 2021 revenue, or $42 million.

We recently entered into a new 5-year master design and development agreement with SoftBank to transition to the next phase of solar HAPS development and build a third aircraft that will benefit from the learning gained in our 5 successful test flights.

Under this new agreement, AeroVironment received a new $52.1 million order to continue our work on the program.

We also received an additional $4.7 million order related to the completion of the previous design development agreement.

We've made tremendous progress on this potentially transformative development program.

In less than 3 years, we designed the Sunglider solar HAPS, established an innovation center and flight test facility, produced 2 Sunglider solar HAPS aircraft, conducted 5 successful low and high-altitude test flights and demonstrated broadband LTE communication from the stratosphere.

We remain committed to creating value in our HAPS product line and are confident that our recent advancements represent an important step towards the ultimate commercialization of solar HAPS technology for global connectivity.

In our 6th product line, MacCready Works Advanced Solutions expanded its capabilities with the acquisition of the Progeny Systems ISG team, a leader in the development of artificial intelligence-enabled computer vision, machine learning and perceptive autonomy technologies.

We plan to introduce new AI capabilities into our small UAS product line this fiscal year, with a road map for continued enhancements into the future.

Also part of MacCready Works, we recently celebrated the historic and highly successful flights of the Mars Ingenuity Helicopter, much of which our team designed and built for JPL and NASA.

With 8 flights completed, JPL has transitioned ingenuity from a technology demonstration to an operational demonstration.

The achievements of Ingenuity speak not only to the ability of our team to develop first-of-their-kind robotic systems for the most extreme environments, but also highlight our culture of partnering with our customers and suppliers to achieve incredible results.

We look forward to continued success with Ingenuity on Mars as well as supporting emerging opportunities in the new category of robotic aircraft for planetary exploration.

Beyond the business achievements we've made in our 6 product lines, we have also focused on the diversity of our team and have instituted programs aimed at furthering our culture of inclusion for all team members.

Our Diversity and Inclusion Committee has established a series of programs designed to raise awareness of critical issues and implicit biases.

Our recruiting team is working with organizations that help us reach more underserved populations, including minority serving institutions and minority professional organizations.

We're focused on finding the best team members based on their skills, experience and ability to live our values, purpose and promise while contributing to our customers' success and to AeroVironment's growth.

Now I will turn the call over to Kevin McDonnell for a summary of the quarter and full year financials.

Kevin?

Thank you, Wahid.

Today, I'll be reviewing the highlights of our fourth quarter and full year financial performance.

I'll be referring to both our press release and earnings presentation available on our website.

Revenue for the fourth quarter of fiscal 2021 was $136 million, a slight increase from the fourth quarter of FY '20 revenue of $135.2 million.

Slide 6 of the earnings presentation provides a breakdown of revenue by product line for the quarter.

The headlines here are the newly acquired Arcturus business, which now becomes our medium UAS product line, contributing approximately $6 million of revenue to the quarter and the year.

This additional revenue was more than offset by a $16.3 million decline in our HAPS revenue versus last year's fourth quarter, which included the build-out of the joint ventures flight test facility.

TMS revenue was strong in the quarter at $39.2 million, but down slightly versus a very, very strong fourth quarter in FY '20.

Small UAS also ended the year strong with $70.9 million of revenue, which is a $7.8 million or 12% revenue increase year-over-year.

Other revenue in the quarter was down $3.5 million from the prior year.

Revenue for the full fiscal year 2021 was $394.9 million, an increase of 7.5% from the 2020 revenue of $367.3 million.

Reflecting continued leadership in our core products, we experienced strong year-over-year organic growth of 12% for the combined TMS and small UAS product lines.

However, this was largely offset by a $21.7 million decline in HAPS and other revenue.

As a consequence, overall organic revenue growth netted to 3% for the year.

The contribution of newly acquired businesses boosted the overall growth to 7.5% level, as previously noted.

Turning to gross margin.

Gross margin for the fourth quarter was $59.7 million, or 44% of revenue compared to last year's fourth quarter of $53.2 million, or 39% of revenue.

Gross margins were and will continue to be negatively impacted by intangible amortization expense, included as part of cost of sales, which was $2.6 million for the quarter versus just over $600,000 in Q4 of FY '20.

Excluding the intangible amortization, overall gross margins were strong at 45.8% for the fourth quarter versus 39.8% in last year's fourth quarter.

Also excluding intangibles, product gross margins were very strong at 52%, versus 42% a year ago.

I should note that when we talk about intangible amortization under cost of sales, this also includes other noncash purchase accounting adjustments.

Gross margin for fiscal 2021 was $164.6 million or 42% of revenue compared to $153.1 million, which was also 42% of revenue for fiscal 2020.

The total margin dollars increased by 7% year-over-year.

Total intangible amortization included as part of cost of sales was $4.5 million for fiscal 2021 versus $2.4 million for FY '20.

Excluding the intangible amortization, overall adjusted gross margin for the year were 43% versus 42% last year.

Adjusted product gross margins remained strong for the year at 47%, which is in line with fiscal 2020.

Our mix of product and service revenue has been roughly 70% product and 30% service over the last 2 years.

As we move forward, we expect this mix will shift to closer to 60% product and 40% service as a result of our medium UAS product lines COCO ISR operation, which is classified as service revenue.

As a result, overall full year gross margins, excluding intangible amortization, will decline a few percentage points as a result of this mix shift.

Including intangible amortization, we expect the drop will be between 5 and 6 percentage points.

Accounting effects aside, we expect full year product margins before intangible amortization to remain fairly stable year-over-year and in the high 40% range.

We expect program and product revenue mix in the first quarter to drive lower quarterly margins, significantly below our full year gross margin expectations.

This should normalize in the second quarter.

Now I'll turn to operating expenses.

SG&A expense for the fourth quarter was $24.8 million compared to $16.3 million for Q4 FY '20.

Included in SG&A for the quarter were intangible amortization and deal integration costs of $6.7 million compared to just over $600,000 in Q4 FY '20, which represented most of the year-over-year increase in SG&A.

The remainder of the increase in SG&A for the quarter was a result of newly acquired operations, offset by lower travel and other expenses impacted by the pandemic.

In terms of the full fiscal year, SG&A expense was $67.5 million compared to $59.5 million for fiscal 2020.

SG&A for the full fiscal year 2021 included intangible amortization and deal integration cost of $11.1 million compared to $1.9 million in fiscal 2020.

Backing out the increase to intangible amortization deal costs, SG&A expenses actually declined year-over-year.

So when you exclude intangible amortization deal costs, SG&A as a percentage of revenue in fiscal 2021 was 14.3% versus 15.6% in 2020.

The year-over-year improvement can be attributed to lower travel and trade show expense as a result of the pandemic.

As business conditions return to normal, we anticipate our SG&A expense as a percentage of revenue before intangibles and deal costs will return to pre-pandemic levels in 2022.

As a point of reference, intangible amortization and integration costs are expected to be a combined approximately $18 million for fiscal 2022.

R&D expense for the fourth quarter was $17.1 million or 13% of revenue compared to R&D expense of $15.5 million or 11% of revenue for the fourth quarter FY '20.

R&D expense for fiscal 2021 was $53.8 million or 14% of revenue compared to $46.5 million or 13% of revenue in 2020.

Looking at the bottom line, GAAP net income from continuing operations for the fourth quarter of fiscal 2021 was $10.9 million, or $0.44 per diluted share, compared to net income of $17.8 million or $0.73 per diluted share for the fourth quarter of fiscal 2020.

The $6.8 million decrease in net income was largely a result of a legal accrual related to our former EES business of $9.3 million, as well as an additional $8 million of acquisition-related expenses, partially offset by gross -- higher gross margin, lower taxes and lower equity method investment activities expenses.

For the full year of fiscal 2021, net income from continuing operations was $22.3 million, or $0.96 per diluted share, compared to $41.3 million or $1.72 per diluted share for fiscal 2020.

The $18 million reduction in net income was primarily due to $11 million of additional acquisition-related expenses, $9.3 million legal accrual mentioned previously, the $8.4 million loss from our portion of the HAPSMobile impairment of its investment to LOON, partially offset by higher gross margins and lower taxes.

In terms of adjusted EPS, Slide 11 shows a reconciliation of GAAP and adjusted or non-GAAP diluted EPS.

Non-GAAP diluted earnings per share for the fourth quarter of fiscal 2021 was $1.04 per diluted share versus diluted earnings per share for the fourth quarter of fiscal 2020 of $0.75.

For fiscal '21, non-GAAP diluted earnings per share was $2.10 versus non-GAAP diluted earnings per share for fiscal 2020 of $1.84, a 14% increase year-over-year.

Turning to the balance sheet.

Total cash investments at the end of the quarter was $201.2 million, a decrease of $116.5 million from the end of fiscal 2020 as we deployed our balance sheet for strategic growth opportunities.

Total cash flow from operating activities for the fiscal 2021 was $87.2 million, of which $23.8 million was a result of working capital improvements and the remainder from operating activities.

The working capital improvement came primarily from the collection of accounts receivables.

During fiscal 2021, we spent $12 million on capital expenditures.

During the fourth quarter, we had total cash outlays from existing cash related to 2 acquisitions that closed in February of approximately $189 million.

In addition, in conjunction with the Arcturus acquisition, we entered into a $200 million term loan facility and a $100 million revolving credit facility with a group of banks.

At the close of the Arcturus transaction, we drew down $200 million on the term loan facility, which was used to fund the acquisition.

The $100 million revolving credit facility remains unused.

We had an additional $55 million of cash outlays related to the Telerob acquisition early in May following the close of that acquisition.

Also at the close of the Arcturus transaction, we issued approximately 574,000 shares of AV stock to the selling Arcturus shareholders.

Now I'd like to highlight some of our backlog metrics.

Our funded backlog at the end of 2021 was $211.8 million, an increase of $107 million from the third quarter of fiscal 2021 and an increase of $3.7 million from the fourth quarter of fiscal 2020 backlog of $208.1 million.

Page 8 of the earnings presentation provides a summary of our current FY '22 visibility.

We picked up over $100 million of bookings since the end of Q4, bringing our total visibility to the midpoint of the guidance range to 61%, which is the highest level for our fourth quarter in the past 5 years.

Now I'd like to turn things back to Wahid.

Thanks, Kevin.

We're planning for the return of many of our team members to our work sites as soon as next month, which is also when we will celebrate AeroVironment's 50th anniversary.

Our growth portfolio is rich with opportunity.

Our intelligent robotic systems in the air, on the ground and in the water will work together to achieve mission success faster, safer and more cost effectively than otherwise possible.

And that intelligence will be bolstered by our expanded AI and autonomy capabilities.

In terms of the U.S. DoD budget environment, the President's Interim National Security strategic guidance provides strategic direction to the U.S. DoD and informs the department's priorities as reflected in the fiscal year 2022 budget request.

This guidance states, "new technologies like artificial intelligence, autonomy and robotics will change the character of warfare, resulting in a faster, more lethal and more distributed battlefield."

Additionally, proposed U.S. government fiscal year 2022 funding for defense procurement and research, development, testing and evaluation, or RDT&E, for unmanned technologies exceed $7 billion.

This includes $68 million for Army LMAMS procurement, where our Switchblade 300 is the incumbent solution; $69 million for Army FTUAS RDT&E, which we are well positioned for with our MUAS JUMP 20 solution.

Additionally, the Army added $73 million to their unfunded list in order to accelerate the FTUAS program by 2 years.

Beyond UAS and TMS, Army ground robotics funding requests total $124 million.

In summary, our expanded portfolio of solutions gives us potential access to as much as $450 million in the GFY 2022 budget request, a much larger set of DoD opportunities than ever before.

Importantly, we have seen no decrease in demand for our solutions as a result of the military drawdown in Afghanistan.

This is consistent with the manner in which small UAS and TMS solutions have become institutionalized into the way our customers plan, train, procure and operate.

Our 3 acquisitions significantly expand our revenue profile along with our growth portfolio, contributing to a significant increase in our revenue expectations for fiscal year 2022.

Looking ahead, we have very good visibility into fiscal year 2022, with strong funded backlog and total visibility of 61%, described on Slide #8 of our earnings presentation.

This gives us confidence in our ability to achieve our annual revenue and earnings objectives.

As summarized on Slide #9 of our earnings presentation, for fiscal year 2022, we expect to deliver a fifth consecutive year of profitable top line growth, with revenue of between $560 million and $580 million, adjusted EBITDA of between $105 million and $110 million and earnings per diluted share of $1.31 to $1.51.

We expect non-GAAP earnings per diluted share, which excludes amortization of acquired intangible assets, to be between $2.50 and $2.70.

This guidance represents a 44% increase in revenue and a 50% increase in adjusted EBITDA.

Because of the impact of the pandemic on contract timing, we expect first half revenue to account for approximately 40% of total fiscal year 2022 revenue.

We also expect first quarter revenue to represent about 40% of the first half revenue, and our first quarter non-GAAP EPS loss of approximately $0.25 to $0.35 as a result of volume and mix effects.

We expect research and development investments to be about 9% to 10% of this fiscal year's revenue.

We expect a decline in fiscal year 2021 overall gross margin to about 35% to 37%, as Kevin described in his comments.

We are monitoring our supply chain carefully for any risks that could affect our business.

As an example, the ongoing global semiconductor chip shortage may impact some of our programs.

In summary, to reiterate our main message for today's call, AeroVironment again delivered on its financial, operational and strategic commitments despite the continued macroeconomic challenges.

As I look ahead into the new fiscal year, I see the potential for continued growth and success for our company.

Our confidence in the future has never been stronger.

We look forward to meeting with many of you in person in fiscal year 2022 and with many others virtually.

I would like to express my deep appreciation to our customers for trusting and working with us as well -- as we all adapted to the pandemic.

Thank you to our incredible expanded AeroVironment team and all its team members.

Your dedication to our purpose and to serving our customers has always inspired me, but even more so this past year.

You have delivered once more and positioned us for continued momentum in fiscal year 2022.

A special thank you to Chairman and former CEO, Tim Conver, who will retire from our Board of Directors effective at our next annual meeting.

AeroVironment would not be the market leader it is today without Tim's vision and perseverance, and we're all grateful for his contributions.

I am grateful for Tim's guidance and mentorship throughout the last decade.

The entire AeroVironment team and I wish him and his family the very best.

I would like to also express my great appreciation to Steve Gitlin, who is leaving us at the end of this month to pursue opportunities outside of AeroVironment and the robotics industry.

Throughout the last 2 decades, Steve has made significant contributions to AeroVironment's success.

Among his many roles and responsibilities, including Chief Marketing Officer, Strategic Planning, Internal Communications and Investor Relations, Steve has always honestly and candidly, represented the voice of our shareholders inside AeroVironment.

Steve has been instrumental in defining and achieving our future-state strategy, which positions AeroVironment as an intelligent multi-domain robotic solution provider.

We could not have achieved what we have achieved so far without Steve's visionary leadership throughout the last 2 decades.

I wish him well in his future endeavors.

With that, Kevin, Steve and I will now take your questions.

(Operator Instructions) Our first question today comes from Pete Skibitski of Alembic Global.

Pete?

Quick question on fourth quarter revenue.

It seemed a little soft versus expectations.

And just by my model, excuse me, it seemed almost completely due to HAPS.

I thought the expectation was for half revenue to be kind of stable year-over-year, but it looks like it was going to be down about $18 million year-over-year.

Was that a surprise to you guys?

Was it due to the contract kind of change?

And then into fiscal '22, I don't know, I'm going on, but should we kind of extrapolate the contract awards to think that half will be up to $55 million in fiscal '22?

So Steve, this is Wahid.

Thanks for the comment.

In regards to your question, obviously, we're very pleased with the record fourth consecutive year of profitable top line growth, both organically as well as inorganically.

And we're also positioned extremely well for fiscal year 2022, with another year of consecutive growth expected.

In terms of the fourth quarter, we faced a few challenges on supply chain, which we addressed most of that throughout the entire year extremely, extremely well.

We -- given the fact that we were in a pandemic, we addressed all those issues quite well.

But there were some specific minor issues that caused some delays and a few revenue items that address our fourth quarter specifically.

Again, record quarter, record year, record backlog, record visibility and also record, sort of, top line growth for the past year and next year.

And we're looking forward to another very, very high-growth year, both organically and inorganically, and we'll keep you updated on that.

In terms of the HAPS, HAPS revenue should go up a little bit more next year, but really it depends on -- that's a customer-funded R&D program.

And that program is really -- the fluctuations are not significant.

But you're right, year-over-year, the HAPS program was slightly slower.

And again, that was affected to some extent by the global pandemic, which we have not been able to travel internationally.

And our customer, our partner has not been able to travel either.

So there's been some effect of that as well on the fourth quarter.

Our next question comes from Peter Arment at Baird.

Peter?

Wahid, on the export for the Switchblade 300, can you maybe talk about -- you mentioned that there were others that were interested.

When do you expect to see potential orders there?

And maybe what's the path forward with that program?

Sure, Peter.

So obviously, we're very pleased with the performance of our TMS business last year.

It's been a growth year for us, and it will continue to be a growth year for us next year, as Kevin and I outlined some of that growth for next year.

In terms of the export license for Switchblade 600 -- 300, I'm sorry, we did receive the first one, and we are -- we expect to ship that before the end of this fiscal year.

We are talking to multiple other interested countries and allies, all of whom have an interest in this capability and this patented, very unique value proposition.

The timing of receiving additional export licenses and awards is, again, very difficult to predict exactly.

However, I think that the fact that we received the first export license does position us well and allows us to have a higher probability of success with additional allies.

We consider the international markets for Switchblade 300 and 600 quite significant.

And we believe that as we execute our strategy and progress throughout the next few years, -- We'll continue to expand our Switchblade 600 exports internationally -- 300, I'm sorry.

Yes.

Just as a follow-up to the 600 comment.

You mentioned that was being incorporated into some Navy vessels or at least the initial award.

Can you talk about if there's other -- interest from other services within the DoD?

Sure.

So we've made a lot of really great progress in fiscal year '21 on our TMS product line in general.

We secured a number of awards for LMAMS contract, which I mentioned, in the tune of $40-plus million in my remarks.

But also, the export license for 300.

In terms of the 600, we received a couple of key awards.

One is our existing customer placed orders for us to deliver units for operational deployments down range, which is very positive.

That means they really believe in the maturity of the product and the differentiated capability of this solution set.

And additionally, we secured another contract, over $20 million, for the development of an additional variant of this, for the ability for Switchblade 600 to be launched off of maritime vessels.

So this is a maritime variant of Switchblade 600, which is a development and a development contract, which our customer is pleased with us so far and continues to work with us.

Now this is obviously a development agreement, which will take us a little bit of time.

But it goes to show that the value proposition of this game-changing capability and the desire of our customers for these assets.

Lastly, I would also mention that all the other branches of the services, including the U.S. Army and U.S. Marine Corps and the Navy are looking at various types of loitering missiles to be basically embedded or integrated with other ground or maritime assets.

So it's very consistent with our strategy, and it supports our theory and our belief that this capability could be very, very game-changing long term for the U.S. war fighters.

Thank you, Peter.

Our next question comes from Joe DeNardi at Stifel.

And Steve, sorry to see you go.

You're one of the good guys in the industry, and you'll be missed.

Thank you, Joe.

That's very true.

We will miss him as well, Joe.

I think Steve has been on every call since the IPO, if I'm not mistaken.

But that is -- anyway, Wahid, just the -- can you give us the organic growth assumption embedded in the FY '22 revenue guidance?

Sure.

So we'll provide more color when we get to our first quarter earnings.

We're still in the midst of the integration of the businesses that we've just acquired, which all are going really well.

I'm not sure if we're going to be able to break out our specific product line growth by that time, but we will keep you updated.

In general, what I can tell you is that for fiscal year 2022, we expect growth both on our acquisitions -- the inorganic acquisitions that we've done as well as on our core businesses.

And our core businesses, TMS and sUAS remains strong.

The product gross margins, going into next year, also remains stable and healthy.

And so we expect growth on both organic businesses as well as our inorganic businesses for the next year.

And as you heard my comments, this would be -- fiscal '22 will be -- if we achieve the outcomes that we've set for ourselves, a fifth consecutive year of double top line profitable growth.

Is the organic growth greater than 10% at least?

We will provide the specific details later on our first quarter earnings call, Joe.

But we feel pretty good about the growth of our businesses.

And another key point that I would mention is that by these acquisitions and the growth of our product line, we're really a very well-diversified portfolio company now.

We've got assets and capabilities in ground, in the air and underwater.

And we have UGVs and UAVs that are of different sizes, customers in different geographies.

So the diversity of our portfolio, customer base and geographic footprint all allows us to have a more -- a better business and a higher growth business.

Yes.

And the organic growth for the core products, as I mentioned, was 12% year-over-year in that combined TMS and small UAS business.

What kind of dragged us down organically was the HAPS and other service revenue.

(Operator Instructions) Our next question comes from Ken Herbert at Canaccord.

I wanted to dig first into Arcturus, and it seems like the run rate for your fiscal first quarter -- or I'm sorry, fiscal fourth quarter, consistent with what you've guided to after the third quarter, but maybe a little bit lower than the run rate when you acquired the business.

How should we think about that business now that you're just a few months in the ownership.

But is it on track to see organic growth in your fiscal '22?

And maybe if you could discuss a little bit more detail, Wahid, on some of the timing around the FTUAS opportunity and how we should think about that.

Is that anything this year?

Or is that really a '20 -- late '22, maybe '23 type opportunity?

Sure.

So Ken, in terms of the Arcturus UAV, we're very pleased with that acquisition.

Obviously, the actual close of that deal happened quite late in the quarter, somewhat later in the quarter.

And so the contributions on the revenue was not very significant.

For fiscal year '22, we expect that business to grow.

And it's really, really well positioned.

As I mentioned in my comments, in the fiscal year '21, at the last quarter, we even received a renewal of one of our sites.

And we're kind of gaining share in that MEUAS IV program against the incumbents that have been there for many years.

And our customers really see the value of our solution very, very strongly.

In terms of FTUAS, what I can tell you is that the timing of this is all in the hands of the U.S. Army.

What they have mentioned is that in the government fiscal year 2022 proposed budget, there is additional line items for the FTUAS program, as I mentioned in my remarks.

And those line items actually even increased by the U.S. Army in order to sort of expedite -- or expedite the whole process a little bit.

Now these are all obviously in the future that needs to happen, but the combined amount is like $69 million on the budget for RDT&E for FTUAS and additional $73 million its unfunded list in order to accelerate the FTUAS program.

We are, as you know, down-selected on that FTUAS program.

We are very focused on making sure that we're positioned well and we compete in order to win, and we like our chances.

But it is a very competitive program and it's a very large program.

So everything in that program for us is a gain in share and gain in market penetration, in addition to our MUAS SOCOM contract and other potential international customers that are interested.

I would add, just that for that division, that they'll have some bumps in revenue during the year as they have deployments.

So that will also bump up the recurring -- the revenue.

Okay.

That's great.

And if I could, on the fiscal '22 guide, the total guidance implies roughly sort of flat EBITDA margin in '22 over '21 as you get a greater contribution from some of the higher-margin businesses like Arcturus.

Is it fair to say that much of the headwind would be coming from lower HAPS revenues?

Or is there something else we should be thinking about as a headwind to margins in '22?

I think we were acquiring these businesses, we're putting them together.

I think we've tried to do our best on estimating what the margin percentage is.

I think, over time, we'll see more leverage there.

Thank you very much for your question, Ken.

Our next question comes from Louie DiPalma at William Blair.

Steve, good luck on your future endeavors.

Thank you, Louie.

Wahid, you discussed how the 3 acquisitions significantly expanded your total addressable market.

If you were to compare your bidding pipeline today and all the opportunities that you mentioned, such as FTUAS, if you were to compare that pipeline to what it was a year ago, how has that pipeline changed now with the 3 acquisitions?

Louie, so the 3 acquisitions really transformed our portfolio and position in the market.

We now have access to a much larger total addressable market, which in the past we really didn't have the ability to be able to compete or participate in.

An example of that is Arcturus UAV, the JUMP 20 and T20 product line addresses a $1 billion-plus market opportunity alone on those 2 platforms.

And we have also, obviously, ideas about integrating our solutions together, which even embraces the value proposition further and opens up new opportunities for us that doesn't even exist today based on our customers' needs and requirements that we know of.

And of course, some of those things could apply to the UGV business that we have.

Obviously, that's a smaller business today, but we're going to be a key player in that space, and we like our solution, we like our position and a very disruptive capability that our product line offers to us.

So in general, I would say it has really transformed our portfolio.

It has dramatically increased our market size and opportunity in front of us.

And what I'm also really pleased with is that long term, besides just giving us access to these specific markets, the integration of AI and autonomy with ISG's artificial intelligence and computer vision technologies, we will be able to deliver even more value to our customers and open up more opportunities for us in the long run.

So it's pretty quite transformative for us.

(Operator Instructions) We have a follow-up question from Joe DeNardi.

Joe, please go ahead.

Wahid, just on OPF-M, I mean, AeroVironment doesn't lose very often.

So I'd imagine that was a bit of a surprise for you.

So can you just talk about what happened there, if you've learned kind of why you lost.

Sure.

So Joe, as I mentioned, we have not won -- we were not awarded this specific phase of the contract, which is the second phase.

And my estimate is that, that's roughly about a $20-ish million worth of an award that we did not receive.

To our knowledge, the customer has not disclosed publicly the winner of that program.

And we were very surprised by that, obviously.

So we continue to seek the customers' feedback on why they think that we were not awarded.

And we will continue to learn more from that and keep you updated as we learn more about it.

Although the customer right now is in a position where they are sensitive to being able to communicate with different contractors until they make a public announcement probably somehow.

I would also mention something else, which you're right, our win rate is extremely high.

We did, however, in other areas when other opportunities which does support our thesis on Switchblade 600 and the larger size market and adoption of it.

While this was really a development activity for the U.S. Marine Corps, it does not rule out for our ability to come in and compete on this third phase, which is really the larger acquisition for deployment and operational production contracts.

And the U.S. Marine Corps has not made any statements related to that yet, so that's one.

Two is we've secured a contract to deliver units for operational use today with our existing customers.

So our systems are -- while this contract was a development contract, we're already deploying systems for operational use.

And then lastly, and an additional customer seeing a lot of value in our solutions, which they have placed an order for the tune of $20-plus million for the maritime bearing of it.

So there's also additional other opportunities that we're tracking.

So like you said, we're disappointed with that we were not awarded, but we've not given up on that, and we're keeping a very close eye on it and that war is not over yet.

Okay.

That's helpful.

And then you mentioned briefly the semiconductor shortage may impact you.

Are there certain programs where that's more acute?

And can you -- I mean, is that embedded in your guidance?

How meaningful could that be?

Sure.

So let me state that because the company we are, we use the latest, greatest, cutting-edge technology in all of our solutions in terms of the latest, greatest computer vision processors, graphics, microprocessors and components that -- across our portfolio.

So far in fiscal year '21, we really addressed the vast majority of those challenges quite well in advance and effectively.

So far, in fiscal year '22, we think that we have managed most of that so far as well.

But as you know, there's a global shortage of these parts.

And the timing of the shortage is really unknown.

And how bad could it get is also, to some extent, unpredictable.

There's likely less impact of that on our production contracts and more likely to affect our engineering development contracts or development activities for new products, because that's where we use a lot of these systems for development of new capabilities.

But so far, we manage it well, and that's already comprehended in our guidance.

However, there's always a risk on that, and I want to make sure that I communicate that to all of you upfront.

Thank you for the follow-up question, Joe.

We have no further questions at this time.

On a personal note, it's been a real privilege to represent AeroVironment and the entire team to the investment community for the past 14 years.

I truly value the relationships I developed here and with the investment community.

Thank you for your attention and for your interest in AeroVironment.

An archived version of this call, all SEC filings and relevant company and industry news can be found on our website, avinc.com.

We wish you a good day, and the AeroVironment team looks forward to speaking with you again following next quarter's results.