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Different Drones Move AeroVironment Higher

Shares of AeroVironment Inc. have gained nearly 15 percent in the last month as the company makes progress on its growth initiatives and remains on track to achieve fiscal year 2020 objectives, according to company executives. During its fiscal first quarter, the Simi Valley unmanned aircraft manufacturer and developer received a $45 million contract from the Army to produce RQ-11B Raven small unmanned aircraft systems for its security force assistance brigades and also acquired Pulse Aerospace LLC, a developer and supplier of small helicopter drones. Chief Executive Wahid Nawabi said during a conference call with analysts that the company was excited about adding the Vapor unmanned helicopter to its product line. “Our team is on track to fulfill more than a $13 million contract for a defense customer, while also engaging with other customers to market this capability,” Nawabi said during the call to discuss quarterly results. For the fiscal first quarter, AeroVironment reported net income of $17.1 million (71 cents a share) for the period ending July 27, compared with net income of $27.3 million ($1.14) in the same period a year earlier. Revenue increased 11 percent to $86.9 million. AeroVironment’s share price closed Sept. 25 at $55.51. Since Aug. 27, when it closed at $49.54, the stock has gained 12 percent. Nawabi characterized the quarterly results as being strong and reflective of the employees’ focused execution and the sustained market demand for AeroVironment’s products. The product demand is exemplified by the recent Army contract, and an impending contract with the Army for its Switchblade precision strike missile system. In a research note, Louis DiPalma, an analyst with William Blair & Co. in Chicago, wrote that when the contract is received by April of next year it should drive the share price up. “The U.S. Army is negotiating with AeroVironment to procure three years of supply of Switchblade missile systems for its (lethal miniature aerial missile system) program, in what would likely be the largest contract in AeroVironment’s history,” the research note said. DiPalma also observed that the company was waiting on Congressional approval to sell the Switchblade to foreign militaries, a development that could happen by the end of 2021 at the latest. International Switchblade sales could be worth $28 million to $36 million in equity value to AeroVironment, the note said. Another developing program that AeroVironment is working on is the Hawk30 aircraft for HAPSMobile Inc., a joint venture between the company and Japanese telecommunications giant SoftBank Corp. The aircraft is designed for continuous, extended missions of up to months without landing. It has both commercial and military applications. Earlier this month, Hawk30, a solar-powered high-altitude platform-station, or HAPS drone, made its first test flight at NASA Armstrong Flight Research Center in the Antelope Valley. In August, the aircraft was given approval by the Federal Aviation Administration for flight tests over Hawaii. Ken Herbert, an analyst in the San Francisco office of Canaccord Genuity LLC, wrote in a research note on Sept. 4 that HAPS was still an unknown quantity in relation to AeroVironment’s future performance. “Should flight testing prove successful, (AeroVironment) would likely be the sole source supplier as the program transitions to production, but the eventual quantities are still uncertain,” Herbert said in the note. “However, the longer-term economic opportunity and viability of HAPS aircraft remains murky.” During the analyst call, Nawabi addressed both the potential Switchblade contract and the HAPSMobile investment. On the former, Nawabi said that the government has allocated funding for the Switchblade in its 2019 and 2020 fiscal year budgets. “Those dollars are already known, and they represent about $180 plus million worth of demand for our original Switchblade alone for this foreseeable future,” Nawabi told the analysts. As for the latter, Nawabi described the HAPS as an “exciting and large growth opportunity.” Chief Financial Officer Teresa Covington outlined that revenue from the joint venture was $12.3 million, or about 14 percent of the quarterly total, while the total value of all HAPS contracts is $134 million, which consist of nearly $126 million for the design development agreement and $8.7 million for preliminary design and other related efforts. “There is $44.5 million remaining on these contracts, which includes a portion that is currently unfunded,” Covington said during the conference call. Cash held by the company at the end of the quarter decreased by 22 percent from the previous quarter, Covington said. “The decrease in cash was primarily related to the Pulse Aerospace acquisition as well as the increased investment in the HAPSMobile joint venture,” she added to the analysts.

Mark Madler
Mark Madler
Mark R. Madler covers aviation & aerospace, manufacturing, technology, automotive & transportation, media & entertainment and the Antelope Valley. He joined the company in February 2006. Madler previously worked as a reporter for the Burbank Leader. Before that, he was a reporter for the City News Bureau of Chicago and several daily newspapers in the suburban Chicago area. He has a bachelor’s of science degree in journalism from the University of Illinois, Urbana-Champaign.
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