Ladies and gentlemen, thank you for standing by and welcome to the AeroVironment Fiscal 2022 First Quarter Conference Call. At this time, all participants' lines are in a listen-only mode. After the speaker's presentation, there will be a question-and-answer session. Please be advised that today's conference is being recorded for replay purposes. I would now like to hand the conference over to Jonah Teeter-Balin. Thank you. Please go ahead, sir.

Thanks and good afternoon, ladies and gentlemen. Welcome to AeroVironment's fiscal year 2022 first quarter earnings call. This is Jonah Teeter-Balin, Senior Director of Corporate Development and Investor Relations for AeroVironment. 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 other filings with the SEC along with the associated earnings release and 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, September 8, 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, Jonah. Welcome to our fiscal year 2022 first quarter earnings conference call. On today's call, I will summarize our first quarter of fiscal year 2022 performance and discuss our achievements during the quarter. 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 of our goals for fiscal year 2022 before Kevin, Jonah and I take your questions. Let me emphasize four key messages which are included on Slide number 3 of our earnings presentation. First, we achieved strong quarterly results in line with our previously communicated expectations. Second, we have secured another record backlog which included both organic and inorganic growth in our business. Third, we continued to successfully integrate the three recently acquired businesses. And fourth, as a result of the strong momentum, we remain on track to achieve our fiscal year 2022 plans while delivering on another year of profitable top line growth. Now, let's summarize our financial results for the first quarter. We delivered revenue of $101 million compared to $88 million last year which is a 16% increase year-over-year. The revenue growth was primarily due to incremental sales, particularly in our Medium Unmanned Aircraft Systems segment. These, along with other organic and acquisition increases, offset the negative impact from lower core product line shipments which we expected in the first quarter, especially from our Small Unmanned Aircraft Systems segment. We achieved yet another record backlog of $258 million driven by new wins across multiple business segments and in part by our recent acquisitions. Our backlog increased more than 20% sequentially from the fourth quarter of fiscal year 2021. This record backlog will enable us to achieve our financial objectives and ensure we are on our path for continued strong growth and value creation. Finally, please note that we now provide increased financial visibility across four reportable segments, including revenue, gross margin and income. While this extra data will provide more insights for investors, segment performance will significantly vary quarter to quarter. For that reason, this data would be better assessed on an annual basis. Moving on, now I would like to provide some color regarding current developments within our various segments. I'll start with our Small Unmanned Aircraft Systems which is our largest product line and where AeroVironment is positioned as the leading global player. We recently announced the award of two firm fixed price orders totaling $15.9 million from the U.S. Air Force for Puma 3 AE unmanned aircraft systems and spares as well as Raven UAS spares. In addition to these wins, our innovation continues with the recent introduction of our Crysalis next-generation ground control station solution. This is another advanced cutting-edge offering which positions AeroVironment as a leader in tactical and covert control systems for UAS and related payloads. Crysalis was designed to make operating robotic systems easier than ever. Crysalis is available in both modular elements and complete turnkey systems, making it adaptable to meet specific mission requirements. Compatible with all major operating systems, Crysalis features an intuitive user interface to reduce cognitive load and training burden, while enhancing situational awareness and battlefield collaboration. Crysalis standardizes the user experience across all AeroVironment's small UAS platforms, simplifying the training requirements and operations of Puma, Raven and Wasp. It's an exciting development that we believe will streamline command and control decision making and improve overall effectiveness in the field while opening new opportunities for growth and value creation for AeroVironment. Next, in our Tactical Missile Systems segment, we made solid progress on our strategy in the quarter. We continued to deliver Switchblade 300 to our key domestic customers while gaining traction with those overseas. We're also making strong progress on our Switchblade 600 which is becoming a larger contributor to this segment's revenue and profitability. We continue to produce low rate initial production quantities for operational fielding of the ground launched Switchblade 600 while also developing the maritime version through its integration into naval vessels for the U.S. Special Operations Command. Moving onto our Medium Unmanned Aircraft Systems segment, where we have continued to successfully integrate that business into our portfolio and operations, we achieved a key milestone in the quarter when we secured another contract from the U.S. Special Operations Command for ISR services using JUMP 20 medium unmanned aircraft systems. The initial task order of $22 million includes the first SATCOM-enabled UAS for beyond line of sight operations as part of our MEUAS IV IDIQ contract with multiple follow-on option years after the initial 12-month period. The JUMP 20 delivers an unmatched level of versatility and performance, providing expanded reach and situational awareness which bodes well for winning future opportunities with our customers. Additionally, the JUMP 20 system is also a candidate for the U.S. Army's Future Tactical UAS or FTUAS program. The U.S. Army's proposed government fiscal year '22 budget calls for over $140 million of funding for progressing this potential program of record. We remain well positioned and look forward to updating you on this exciting growth opportunity. Our new unmanned ground vehicle product line was created through our most recent acquisition of Telerob, a German leader in ground robotic solutions with a global footprint. This transaction closed at the beginning of the first quarter and marks a significant expansion into the ground domain for our portfolio of intelligent, multi-domain, robotic systems. We're successfully integrating the Company and while we did not win the previously discussed U.S. Air Force EOD robot program, we continue to actively pursue new cross-selling opportunities, domestically and internationally. We remain excited and optimistic about the future of this business as part of the AeroVironment portfolio. In our HAPS product line, we are moving ahead in designing the next-generation aircraft under the terms of our new five-year master design and development agreement with SoftBank. With the initial $51 million order secured last quarter we are transitioning this program to its next phase in which we expect to build a third aircraft and continue extensive flight testing and certification. We are also starting to engage with various domestic defense customers who have shown interest in Sunglider's unique capabilities. While these engagements are early in nature, our solar HAPS performance characteristics represent a significant market opportunity and defense applications for both counterinsurgency and peer/near-peer conflicts. And finally, our MacCready Works Advanced Solutions group continues to lead the industry in AI and autonomy. We remain engaged in multiple advanced customer-funded R&D projects which are paving the way for AV's continued leadership and multi-domain robotic system solutions. Additionally, the Mars Helicopter, Ingenuity which our MacCready Works team helped design for NASA, continues to amaze the world, exceeding all expectations. Ingenuity has been withstanding extreme Martian environmental conditions for over six months now. It just completed its 12th successful flight in Mars' atmosphere. Ingenuity is now being sent out to scout the way for perseverance. This is yet another testament to one of AeroVironment's core competencies, which is designing and delivering solutions with high reliability and ruggedness for extreme environmental conditions. Now, I would like to discuss three important global issues that could directly affect the Company. The situation in Afghanistan, COVID-19 pandemic and global supply chain disruptions. As I'm sure our listeners are aware, the U.S. just completed its withdrawal from Afghanistan after 20 years on the ground. First and foremost, I'm pleased that we were able to safely evacuate our employees from the country. We thank the U.S. forces for their sacrifice during this incredibly challenging time and keep the people of Afghanistan in our thoughts. The U.S. service members and Afghan civilians lost in these recent tragic events will remain in our hearts forever. While the withdrawal of allied forces was anticipated, the rapid pace of the Taliban's takeover was not expected. However, we do not anticipate these events will have any material impact on the markets we serve or our operations. While our products were used in various local missions as well as throughout the region, we believe that strong bipartisan support for our products will continue. The proposed U.S. government fiscal year 2022 defense budget includes $68 million of continued funding for army LMAMS procurement where our Switchblade 300 is the incumbent solution. Additionally, our current record backlog also provides adequate visibility into the Company's future growth. We will continue to closely watch the situation. As the world continues to battle COVID-19 and its variants, so far, we have successfully mitigated and minimized material impacts to our business. Our operations are running smoothly. International travel still remains a challenge but we believe AeroVironment is well positioned to post top line growth and solid financial results this fiscal year and beyond. Of course, this is a fluid situation and we are closely monitoring it. We remain prepared to react quickly. Further, supply chain bottlenecks and shipping constraints exacerbated by the pandemic continue to impact global OEMs and their ability to get products to market. We continue to monitor our supply chain and are working to mitigate any risks that materialize. While we have had some supply chain challenges due to shortages of leading-edge semiconductor microprocessors, we remain on track to achieve our objectives for the full fiscal year. During the quarter, we also strengthened our Board with the appointment of Cindy Lewis. Cindy has more than 30 years of leadership experience at several aerospace organizations, including most recently as CEO of Airborne Consolidated Holdings. Given her expertise and acumen, we're thrilled to have her on board. At the same time, we announced that Arnie Fishman has decided to retire and not stand for reelection at the Company's annual meeting of its shareholders on September 24. On that day, both he and Chairman, Tim Conver will retire after several decades of service to the Company. We thank Tim and Arnie for their dedication and numerous contributions and wish them well in their future endeavors. With that, I would like to now turn the call over to Kevin McDonnell for a detailed review of first quarter financials.

Thank you, Wahid. Today, I'll be reviewing the highlights of our first quarter performance, during which I will occasionally refer to both our press release and earnings presentation available on our website. I would like to note, before I begin that now we have four reportable segments: Small UAS; Medium UAS; Tactical Missile Systems; and Other. The Other segment is comprised of our newly acquired unmanned ground vehicles business HAPS and our engineering services business which includes the acquired Progeny ISG business. In our Form 10-Q and press release, we will continue to report revenue, gross margin, income from operations and adjusted operating income for each segment. For the investor, this will provide improved transparency but as Wahid mentioned, I would caution that our segment performance will vary greatly quarter-to-quarter as a result of business mix and volume, so it would be better analyzed on an annual basis. Revenue for the first quarter of fiscal 2022 was $101 million, a 16% increase from the prior year's comparable period. Slide 5 of the earnings presentation provides a breakdown of revenue by product line for the quarter. Our Small UAS business segment generated $39.9 million of revenue versus last year's first quarter revenue of $56.2 million. The year-over-year decline reflects the timing of orders, particularly after a very strong fourth quarter of almost $71 million in revenue. Our newly acquired Medium UAS segment had a solid first quarter at $22.4 million which was in line with our expectations. The Tactical Missile Systems business or TMS business contributed $19.2 million of revenue during the quarter, up from $9.5 million versus the prior year period. We remain positive on the continued growth of the TMS business. Revenue from the Other segment which includes HAPS, declined slightly year-over-year to $19.5 million versus $21.7 million in the fiscal 2021 first quarter. The decrease was largely the result of a decline in HAPS revenue of approximately $6 million, partially offset by revenue from the acquired Progeny ISG and UGV businesses, both of which were on track with our business plan. The HAPS variance year-over-year was largely attributable to the fact that in the fiscal 2021 first quarter, we were ramping up to a flight test, driving additional service revenue. In summary, newly acquired business contributed just over $29 million in the quarter, more than offsetting some of the timing challenges in our Small UAS business. Consequently, our base business slowed 18% in the first quarter from the prior year's first quarter. On a LTM basis, our core Small UAS and TMS businesses combined grew just over 12%. Before I jump into the gross margin numbers, the big picture is that intangible amortization of the three acquisitions has had and will continue to have a negative impact on our GAAP margins but our core products and service margins remained strong and consistent with our historical business model. We now have a chart in the earnings presentation slide which shows product and service gross margins without intangible amortization. When you adjust out the intangible amortization because of the product versus service mix analysis as well as the normal product mix issues impacting gross margins. As a reminder, historically, there has been a 10 percentage point to 15 percentage point difference between our product and service margins. In the short term, there will be some drag on the service margins as we absorb the Progeny ISG contract and to some extent take on the Medium UAS service business which has lower gross service margins than the historical AV business. With that said, let's turn to the numbers. Our gross profit for the first quarter was $28.7 million, representing a gross margin of 28% of revenue compared to last year's first quarter gross profit of $35.4 million or 40% of revenue. When you back out intangible amortization of $4 million and $600,000 from the current and prior year periods, respectively, overall gross margin was 32% in 2022 versus 41% in 2021. The lower gross margin was anticipated as mentioned during our fourth quarter conference call. This is primarily due to the high proportion of service revenue in the quarter as well as the product mix in the pipeline. The quarter consists of 53% product revenue versus 47% service-related compared to a historical 70/30 split. Our aggregate gross margin without intangible amortization was 42% in the first quarter versus 46% last year, reflecting the negative impact of lower mix of small UAS revenue which historically has higher margins. We continue to expect product gross margins excluding intangible amortization to be in the historical mid-40s percent range for the year. Service gross margin, again backing out intangible amortization, was 22% in the quarter versus 31% in fiscal 2021. The decline was largely attributable to project mix and slightly lower margins from the Progeny ISG and Arcturus acquisitions which both have substantial service components but provide AV with very strategic capabilities. Over the past two years, our service margins have been in the low-30% range and we would expect the same for fiscal 2022 in total. As explained on prior calls, our product and service mix, along with our product and service margins, will vary quarter to quarter. Next, turning to operating expenses. SG&A expense for the first quarter was $27.1 million compared to $12 million in the first quarter of fiscal 2021. Included in SG&A for the current year quarter were intangible amortization and deal integration costs of $8.3 million compared to $86,000 last year. The $7 million remainder of the increase in SG&A year-over-year was a result of the newly acquired operations partially offset by lower travel and other expenses impacted by the pandemic. When you exclude intangible amortization deal costs, SG&A expense as a percentage of revenue in fiscal 2022, was 19% for the first quarter versus 14% last year. However, SG&A, excluding intangible amortization should normalize in the 15% to 16% range for the full year. R&D expense for the first quarter of fiscal 2022 was $13.7 million or 14% of revenue compared to $11.1 million or 13% of revenue for the first quarter of fiscal 2021. Again, the increase in R&D reflects the newly acquired operations. R&D as a percentage of revenue should be in line with our guidance of 9% to 10% for the full year. Looking at the equity method loss activity in the quarter, we recorded a loss of $1.1 million related to our HAPSMobile joint venture. As disclosed earlier, we are in the process of finding additional financial partners to carry the HAPSMobile joint venture to full commercialization. In the interim, AV and SoftBank are advancing funds in the form of loans that cover the administrative cost of the venture. For accounting purposes, the loans are considered investments and require AV to record its proportional losses of the JV. Under the terms of the agreement, the loans are guaranteed and will be repaid when financing is obtained or through stock payments. Upon repayment, any previously recognized losses, up to the amount of the loan, will be recorded as equity method income. We expect to continue to record equity method losses during Q2 and Q3, but the net impact to our full-year earnings should be minimal. Looking at the bottom line, our GAAP net loss for the first quarter of fiscal 2022 was $14 million or $0.57 per diluted share compared to net income of $10.1 million or $0.42 per diluted share for the first quarter of fiscal 2021. The $24.1 million decrease in net income was due to $12.4 million of acquisition-related expenses, $7.3 million of incremental SG&A from acquired businesses, $3.3 million of unfavorable gross margin mix and $1.5 million of higher net interest expense. These were partially offset by a tax benefit during the first quarter versus a tax provision in fiscal 2021. In terms of adjusted EPS, the Company posted an adjusted loss per diluted share of $0.17 for the first quarter of fiscal 2022 versus earnings of $0.44 per diluted share for the first quarter of fiscal 2021. The adjusted loss was slightly better than our expectations as outlined on the fourth-quarter conference call and we are still on track for the guidance we have outlined. Turning to the balance sheet, total cash and investments at the end of the quarter was $123.9 million, a decrease of $77.3 million from the end of fiscal 2021 as we deployed our balance sheet for strategic growth opportunities. During the first quarter, we had total cash outlays related to the Telerob acquisition which closed in May, of approximately $46 million, net of cash acquired. We continue to have a strong balance sheet with over $120 million of cash and investments and $100 million working capital facility. Now, I'd like to highlight some of our backlog numbers. Our funded backlog at the end of the first quarter of fiscal 2022 was $257.7 million, a sequential increase of $45.9 million from the fourth quarter and an increase of $103.3 million versus the first quarter of fiscal 2021. Slide 7 of the earnings presentation provides a summary of our current fiscal 2022 visibility. As of today, total visibility toward the midpoint of our $560 million to $580 million revenue guidance range is 66%. Now, I'd like to turn things back to Wahid.

Thanks, Kevin. As I mentioned earlier, we're strengthening our leading market positions, achieving critical milestones, expanding our offering and delivering on our commitments to our customers. Supported by 66% visibility to the midpoint of our guidance range and summarized on Slide number 8 of our earnings presentation, now, I would like to provide some updates to our guidance for this fiscal year. We are reaffirming our full fiscal year 2022 guidance for revenue of between $560 million and $580 million and adjusted EBITDA of between $105 million and $110 million. We have revised our GAAP EPS guidance to $1.15 to $1.35 reflecting the final purchase accounting for our Telerob acquisition. As we communicated last quarter, our prior GAAP EPS guidance was contingent upon completing this effort. We're also reaffirming our guidance for non-GAAP earnings per diluted share which excludes acquisition-related expenses, amortization of acquired intangible assets and other non-cash purchase accounting adjustments to be between $2.50 and $2.70. Before turning the call over for questions, let me sum up the quarter with three key messages. We delivered top line growth and solid results as we build our backlog to yet another record level. We're making good progress in successfully integrating our recent acquisitions. And we're on track to meet our annual guidance with gross margins and underlying profitability expected to increase as the fiscal year progresses. In short, our goals remain the same as before: to expand the Company's base of business; strengthen our leading position across the unmanned robotic systems landscape; and deliver solid returns for our shareholders. Looking ahead, our record backlog, strong balance sheet and the enduring demand for our products and solutions position us to have our best year ever. But we won't stop there. We continue to execute on a strategy to broaden our capabilities, integrating robotics, data analytics and intuitive user interface to provide more effective tools than ever before for our customers. I am confident we have the staff, technology and key customer relationships to build the AeroVironment of tomorrow. We have enjoyed the opportunity to meet and speak with our investors over the past quarter and thank you for your continued interest in AeroVironment. We have been increasing our visibility and speaking with investors as much as possible and look forward to connecting at our upcoming conferences and our virtual Annual Stockholders Meeting on September 24. I want to say thank you to our customers, our team members and our shareholders for your ongoing engagement and for challenging us always to deliver excellence. We continue to focus on delivering on our promise to help you proceed with certainty. Kevin, Jonah and I will now take your questions.

And our first question comes from Peter Skibitski from Alembic Global. Your line is now open.

Hey. Good afternoon, guys. Thank you. Guys, it looks like we'll have a continuing resolution, certainly for the federal government for fiscal '22, starting in October. Just was wondering, if you could give us a sense of the level of that's factored into your guidance for fiscal '22. And then, just any more color you can provide maybe on Small UAS for this quarter in terms of it being down? Was that due to maybe a gap between either production or upgrade cycles or something else? And would you expect small UAS to ramp the balance of the year? That's it for me. Thank you.

Hi, Pete. Thank you for your questions. Yes, I can provide some insight on both topics. Regarding the U.S. government's budget continuing resolution, we've factored that into our guidance. The situation is changing, but we believe that despite the resolution, we are on track to meet our fiscal year results as mentioned earlier. Our strong backlog also positions us well for the upcoming quarters. Concerning the decline in the small UAS business for the first quarter, it's crucial to focus on the long-term perspective of these businesses. The lower revenue in Q1 was mainly due to the timing of specific contracts. Since our business consists of large individual contracts, the timing of any one of them can greatly impact quarterly results. However, if you look at the longer-term view, you'll see growth across most of our core businesses, particularly in small UAS and TMS. As Kevin pointed out in his comments, the trend over the last several quarters shows nearly 12% growth in our core businesses.

LTM basis.

Yes, on a last twelve months basis. In our guidance this year, we anticipate growth in both our TMS and small UAS businesses compared to last year. Overall, I'm quite optimistic. We're exploring numerous opportunities both domestically and internationally, and we'll keep you informed about our progress.

No, I appreciate the comment about guidance, particularly. That's helpful. Is the international travel restrictions related to COVID still a significant barrier to closing sales for any of your products at this point?

Yes, Pete, that has continued to be a challenge. As I mentioned earlier, we have handled these challenges quite effectively so far. We are able to enter these countries and facilitate travel, but it remains very limited and quite difficult. In many countries in the Middle East, the processes are lengthy and challenging. Additionally, a lot of customers are still hesitant to allow their teams to travel and to permit visitors into their countries and sites. This is also true for many U.S. government sites, which are still cautious about granting access. However, we anticipate that this will change over time as vaccinations become more widely required across U.S. operations.

Okay, great. Thanks for the update, guys.

You're welcome, Pete.

Thanks, Pete.

Yes, thanks. Good afternoon Wahid, Kevin, Jonah.

Hi, Pete.

Wahid, we frequently receive questions about how the increased presence of personnel in theaters affects the performance of your MUAS business for on-demand services. How would you describe this? I know you've received some recent awards in that area.

Sure. So Peter, in terms of our MUAS business, we were very pleased with the results so far that we've delivered. The business has obviously grown already for the first quarter. We expect that business to continue to grow this year. The U.S. SOCOM's contract, the MEUAS IV opportunity, we're really gaining share and a very large position on that today. So, I expect that to continue. The signs and signals from the U.S. SOCOM are quite positive. We believe that the drawdown could actually increase ISR services in that region and many other regions around the world. As the U.S. starts to have less boots on the ground, the need for intelligence, surveillance and reconnaissance, data analytics and those types of services is expected, to some extent, to actually do better in general. So, we feel good about that for both our small UAS as well as for MUAS business in general.

Okay, that's helpful. And just last quarter you gave us an update on kind of TMS for export opportunities. Maybe what's the latest there that you can talk about?

Sure. We've obtained our first export license and are currently in the process of building that product and shipping it to our customer. We're engaging with several other countries that have expressed interest in this capability and are starting to request acquisitions. As I mentioned earlier, it is a matter of when, not if, we will gain more international customers for Switchblade, specifically the Switchblade 300. Additionally, since announcing the Switchblade 600, we've also seen interest in the ground-launched version from international markets. Although that is still in the early stages, it presents a significant long-term opportunity for us. With the reduction of U.S. troops on the ground, we believe that international countries will have an increased need for this capability to defend themselves and ensure their safety.

Okay. And just the last one for me, Kevin, just to calibrate us on guidance, are you still expecting kind of a 40% of the mix in the first half, 60% second half in terms of revenue? Thanks.

We haven't changed that.

Okay, thank you.

Hi, Wahid. How are you?

Hi, Austin. Pretty good. How about yourself?

Pretty good here. Just my first question. If we look at the backlog in the pipeline here, do you consider the most significant upcoming opportunity for you guys to be the SOCOM MEUAS IV contract or the Army's Future Tactical UAS program?

So, Austin, both of those opportunities are significant for us. They both represent long-term prospects for AeroVironment. The MEUAS has seen our acquisition of Arcturus as a new player in that contract over the last two years, and they have consistently gained market share against the two main incumbents in that space. We are pleased to see this share growth, and I expect it to either remain stable or continue to increase. It is very competitive, and I believe the competition will become more aggressive moving forward. Nevertheless, we are in a strong market-leading position and continue to expand in that area. Furthermore, on the FTUAS side, we have a new multi-hundred million dollar long-term program. The U.S. Army has allocated over $140 million in the budget to accelerate that program in the next government fiscal year, which is 2022. We are one of the selected options and anticipate it to be a significant opportunity for our growth. In addition, we expect our Small UAS, our TMS, and our other acquisitions to grow this year and beyond.

Okay, great. Considering TMS and the shift in budget towards Pacific warfare and potentially countering China, do you anticipate or have you been bidding more on either Blackwing or the Ship 1 bearing of the Switchblade 600 for additional naval platforms?

Sure. So Austin, we actually have secured a contract with the U.S. Navy for the Blackwing. We now are on contract. They have an actual official program of record for Blackwing to essentially increase the deployment of Blackwing into more and more of U.S. submarines. In the last two years to three years, that adoption has gone extremely well. The Navy is very satisfied with our capability and we expect that to actually continue over the next year or two. However, that business, because the size of the submarine fleet is not very large, is not a very significant or large opportunity. In terms of Switchblade 600 maritime, as I mentioned in my remarks, that's definitely a large opportunity for us. We already have a contract with U.S. SOCOM but there are several additional U.S. services that have an interest in that platform, both independently by itself as well as integrated with maritime vessels, small and medium-sized ships, as well as other ground assets. So, we're going to continue to progress those and continue to actually work those aggressively. And I feel good about that for the long run because it's going to be a significant growth opportunity for us for the TMS business.

Okay, great. That's very interesting. Thank you for the color there.

Thank you, Austin.

Thank you, Austin.

Yes, thanks, everyone. I want to clarify our current status with HAPS. How much additional financial support is required, if any, to complete the development? Are you seeking more financial sponsors for the development, or is the focus more on securing funding for follow-on production? Also, when do you anticipate finishing the design and testing of the new design?

I'm glad you asked that question, Pete, because it's a critical growth opportunity for us. We have recently secured a five-year master agreement with SoftBank, which allows SoftBank to place multiple orders with AeroVironment over the next five years. The first order, which we secured towards the end of last fiscal year, is a $51 million contract that will fund us for about a year to 15 months. This contract is intended to help us design the next-generation airplane by incorporating the lessons learned from the initial set of flights, leading to a design that can be certified by the FAA and other global agencies. The funding we have is sufficient, and regardless of whether we bring in another investor, SoftBank and AeroVironment are committed to pursuing this opportunity independently. When we developed the business plan for HAPSMobile with SoftBank, we agreed that after completing Phase 1, we would seek additional investors to join the HAPSMobile joint venture. We believe this venture serves as a unbiased global entity capable of connecting billions of people, attracting interest from other telecom operators and strategic and financial investors. Both SoftBank and AeroVironment remain open to this idea, but we are also fine continuing without additional investors if necessary. Regarding the design phase, we expect it to be completed in about 12 to 15 months, during which time we will also build a third airplane that will form the basis for FAA certification. We are currently addressing the necessary materials and supply chain issues to ensure timely construction of that airplane.

Okay, that makes sense. I appreciate all the color.

You're welcome.

Let me ask a follow-up. Can you provide another program update? I recall you are working on integrating the Switchblade 600 with the Kratos Valkyrie. How is that progressing, and is there a completion date you are aiming for?

We are collaborating with Kratos on the Switchblade 300 and 600 to integrate them with their platforms, particularly the Valkyrie platform for various programs they are working on. This partnership is progressing well, but it's still in the early stages. It's early because they first need to secure the program of record, which they seem to be doing successfully. As they succeed in this program, part of the development will involve the U.S. Air Force integrating our drones and loitering missiles with that platform. Both Kratos and AeroVironment have confidence in this capability, and feedback from their customer interactions has been very positive. However, this is a slower and more long-term process rather than a short-term one. This is just one of several initiatives; we are also working with General Dynamics Land Systems to integrate Switchblade with their ground platforms for programs like the Optionally Manned Fighting Vehicle for the U.S. Army, in addition to many other future opportunities we plan to compete in.

Okay, great. I promise this is my last question. It seems like there aren't many competitors, but regarding the two recent competitive losses, the Air Force EOD competition with Telerob and the Marine Corps OPF-M, I remember you hadn't yet received a debrief from the customer last time you reported. Have you had a chance to get debriefed on those two programs? Without going into too much detail, do you feel you've gained insight into what the customers were looking for in those competitions?

Yes and no. To the best of our abilities, we've tried really hard to learn as much as we can. We have gotten some feedback. We are still in sort of assessment of that, learning more about it. The truth of the matter is that we have a very diversified portfolio now and we're engaged in lots and lots of opportunities at any given time. So while we don't like any losses, the probability that we're going to have one or two or three losses here and there is obviously with our portfolio and our business growing, sort of changed the optics a little bit. In regards to those specific opportunities and lessons learned, absolutely there are lessons learned. There are several of them. We have a very thorough process internally that we go through that. We take them very seriously. And one of the things actually has been a little challenging is because of the COVID situation, travel to the customer and having sit down face-to-face meetings have been more difficult and challenging. However, we're going to continue that path. And regardless of that, we expect both of these two businesses to grow this year and they have been growing in the past. So, we still feel good about the overall market opportunity there for us and for the rest of our portfolio.

Wahid, Kevin and Jonah, good afternoon. How do you view HAPSMobile's business model compared to recent satellite start-ups such as AST SpaceMobile trying to broadcast cellular signals from space directly to cellphones?

Sure. So, we obviously keep a close eye on the developments in the entire broadband space, not only on terrestrial but also stratospheric and space related. SoftBank, who really is an expert in this area, who have invested in all different domains, whether it's space, new space, stratospheric and terrestrial, they are really a great source of sort of an opinion on this. Their opinion is that essentially, there's not one winner takes all. The market is massive and all of the platforms play a role. However, HAPSMobile and Sunglider's value proposition is extremely unique and very, very disruptive. There are lots of advantages to our Sunglider platform compared to any of the LEO and geosynchronous satellites. And while we do not expect to completely displace them completely and replace them, we do believe that Sunglider will play a very key role and a significant role in the long run in providing broadband. I can go through a list of specifics as to why SoftBank and we think that but it's quite evident even from some of the satellite players that they consider solar Sunglider as a complementary rather than an inferior solution. We believe it's actually got a lot of superior capabilities.

Great. And also on the topic of satellite connectivity, in July, you announced that you won the SOCOM award with the MEUAS IV program to put SATCOM connectivity on your JUMP 20. Are you able to disclose whether it's L-band or K-band satellite connectivity? And related to that, are you aware if any of your competitors in Group 2 also have this satellite connectivity capability?

So Louie, I am not able to actually disclose that specific information about those contracts. As you know, they're very sensitive in terms of our customers' operations and we're not allowed to talk about that. What I can tell you is that we were the first one and we will be the first in the MEUAS IV agreement, not only to win the sale but also to potentially provide that. Are others going to try to provide that? I can't really speak to that openly because of the confidentiality of our customer and the sensitivity of the application for customers' safety.

Thank you for the opportunity to clarify something Pete Skibitski mentioned regarding the HAPS. I heard some numbers concerning the third aircraft, and I want to confirm whether you expect to receive an order within 24 months or if you anticipate producing the third aircraft in that timeframe. That figure stood out to me, so I would appreciate it if you could reiterate that information.

Sure. We have secured a contract from SoftBank worth over $51 million. The goal is to incorporate insights from the first two aircraft and their initial five flights into the design of the third aircraft while also commencing its development. We anticipate completing the production of this airplane within 24 months. To provide some context, the first two airplanes were built in under two years. The timeline hinges on finalizing the design and configuration, collaborating with the FAA for certification, and then proceeding with the assembly and material procurement for the airplane.

Thank you. This concludes today's conference call. Thank you for participating. You may now disconnect.

Thank you, everybody.