Great. Good afternoon. I am Louis DePama. I cover aerospace and defense on William Blair's equity research team, and this is the second day of our 46th annual William Blair Growth Stock Conference. We're pleased to be hosting a hybrid presentation slash fireside chat with AV's management team. AV is the branding of the company, formerly known as Aerovironment, after the merger with Blue Halo that closed roughly 13 months ago. Joining me today are Chairman, President, and CEO, Waheed Nawabi, and CFO, his freshly new CEO, Sean Woodward, and Head of Investor Relations, Denise Passione, who's sitting in the front row. Following the presentation, there will be a breakout session in the Adler room on the second floor, and I am required to inform the audience that a complete list of disclosures and potential conflicts of interest can be found on our website at williamblair.com. I also wanted to mention that I was supposed to meet with Waheed two weeks ago at the Soft Week conference in Tampa. However, Waheed was too busy to meet with me because he was meeting with customers. And so I'm relishing this opportunity to actually meet with Waheed now. Wow, so this is wonderful. So my first question in terms of the broader drone landscape, I'm sure many in the audience saw that many stocks in the drone sector traded up between 20 and 35 percent last week after the Wall Street Journal reported that the administration may be interested in investing in drone companies, and I was wondering what your thoughts, Wahid, would be for that and whether that would potentially appeal to aerobirament or what's your general view on that?

Sure. Thanks for having us. Good afternoon, everybody. I think it's afternoon. You do the disclosure one better than I could do it in my call, so maybe you should do it from now on from me as well.

Forward-looking statements.

Forward-looking statements.

You are free to make them.

Thank you. A, and B, in 15 years, I think the soft week was the first time I couldn't make it to meet with you, and thanks for reminding me, so it'll never happen again, especially not before your conference. Well, look, the signs about this Office of the Strategic Capital within the Pentagon is very clear. This is a positive sign for the industry because they believe this is a strategic area for national security as a country, and it's an area that the U.S. needs to accelerate investments in adoption and development of capability and capacity. And they're willing to take hard U.S. taxpayer dollars and invest it in an equity or joint venture or teaming agreements to basically build the industrial base and build the capability and capacity overall. So that's not bad. That's very positive. And we support the administration on this front. Second, we are actively engaged with them on several fronts in this area. There's multiple ways that we could essentially have a win-win-win outcome for the department, for the U.S. taxpayer, and also for AV. And primarily this program is focused on a lot of startups that lack the capital, do not have the balance sheet, they don't have the capacity to produce, they do not have, they have some good ideas. You're not a startup. we are not a startup that is that's a fact I believe and so we are interested we want to work with them there's some options but it's not the directly targeted for the things that we do specifically as a company it'll be more we're open to it there are some opportunities for win-win-win for those three stakeholders and we'll engage with them I'm not in a position to be able to comment on those but we look forward to engaging with them further it's primarily focused on folks that don't have the capacity to invest don't have the capital to do do this they don't have the investors that can back them up and the country needs a lot of those as well and that's what it is what we could help them actually is also in some areas to partner with the department and

help some of those startups scale things that we know how to do in the areas that we're focused on that's how I generally interpreted it but you know if the department of war were interested in investing in you at like $400 a share then that would be pretty good it'll be still a very fair and reasonable and bargain for them but that's that's for them to decide not me so you've traditionally been known as a drone company you pioneered the small drone industry with your Raven, your Puma, your Switchblade and now you have your Jump 20 but one of the really compelling market opportunities is now you are also a laser company with your locust and your laser system has been in the media over the past six months and you've signed many agreements and investors are interested in you know what is the market opportunity associated with lasers both domestically in terms of protecting the homeland golden dome but also in conflict regions in actual theater yeah the the short answer is it's a massive potential market opportunity no one really knows

exactly the magnitude and size of this market because it's just starting and it's going to be in the billions of dollars long term and we've got you know the leading position in the market before I get into a little more details on that I want to just describe the overall AV investment portfolio and thesis for investment our business is made up of roughly four buckets and in general right roughly we're in a quiet period so I can't comment on fourth quarter but I'm gonna just talk in general if you'd say about a two billion dollar revenue business about a half a billion of that is what I call non-lethal drones for Group 1, 2, and 3. That means from a small quadcopter-sized drone all the way to a Group 3, which is a Jump 20. It's a, you know, 200-pound plus air vehicle. That Shahid drone is a Group 3 drone from Iran. So in that space, that's about a half a billion dollar business for us. We've got solid franchises. We've got several products. The Puma, the Raven, Puma LE, P550, jump 20 jump 20 X vapor etc and it's we got a franchise that's global 50 plus countries around 55 countries around the world and it's generating cash generating revenue and it's got a huge install base and potential of growth the next bucket is what I call our lethal drones that is another 600 million ish or so growing very rapidly it's a category that we invented again for the militaries we did the first category the same thing you know the US military did not know how to use small drones 30 years ago and we were the ones who actually help them operationalize it. Loading munitions such as switch blade 300, 400, 500, 600 and one-way attack drones such as Red Dragon make up that bucket. That's about another 600 million dollars growing very rapidly and that market has really taken off since the Ukraine conflict because it's put an exclamation mark on one-way attack or loading munitions in general. And then we have our third bucket which you're referring to is our counter drone solution set and we don't have a one single solution point and we don't depend on one technology. Our approach has always been long-term. There's going to be a layered approach to defending against drones, group one through three. First, group one through three, which is small, medium, and semi-large drones, make up probably 90% of the market opportunity. And that's a vast majority of the drones in the market that is going to be used as lethal and non-lethal drones. Our solution has three layers. Layer one is we've got the world's best jamming RF jammers and that's the simplest easiest way to defeat these things they all have comms on the ground with the operator they all use GPS or majority even do and you can jam that and we've got the world's best performing heavily deployed in Ukraine across the world US military one program record and it's the best one in the world when that doesn't work then you go to the next layer which is a directed energy laser weapon system that's what you refer to our locust series, we're in our third generation product. X3 was the latest product we just announced recently and that business is at its infancy, literally at its infancy. The first potential program record that the US Army has talked about, you know, it's called eHealth or Enduring High Energy Lasers. It's supposed to be roughly about a half a billion dollar program or one of the top contenders. They should be making a decision within the next few months. And that would be an inflection point for that because if jammers don't work, most likely the holy grail for counter drones is going to be direct energy. This is basically a weapon system that's lasers. You point it to the drone, you track it and you hit it within one to five kilometers away and three seconds to five seconds of energy and you zap it from the air. And it takes the cost of defeating a drone from millions of dollars of a missile to less than ten dollars a shot and then if that fails you use kinetic kill and we have a product in that category called freedom eagle one and then everything else is another seven hundred million dollar worth of what I call a portfolio of things that could become the next switchblade the next laser weapon etc etc and so I think we have growth in all these buckets and our strategy is to achieve success long term in the area that we're focused on with software analytics on top great and as it relates to that layered system what What are the different like ranges for like the Titan in terms of being able to jam versus

like the second layer that you just mentioned, your locus system? And how does that compare to like what's in the market in terms of like there's the coyote interceptor and then you were also mentioning these like very high-priced like Pac-3 or Tad missile interceptors as well. And so, how does, in terms of, like, where does the laser system fit in there?

Yeah, so we, so the laser system, just like any other weapon systems, come in different sizes based on kilowatt, how much energy you're going to deploy or direct to the target. At the lowest end, you're looking at about 5, 15, 5 to 15 kilowatts. And then the sweet spot is between 15 to 30. Our X2 product is a 20-25 kilowatt, and the U.S. Army program is targeted to be around 30 kilowatt. At 30 kilowatts, you're going to take out group one, two, and three very effectively. So from a small little quadcopter all the way to a shy head drone, you can achieve success against those drones very effectively with our X3 product for the U.S. Army program record, potentially. So now, above that, you still need the direct energy still has a market for, you know, even missiles against hypersonics and other things. And you can go up in kilowatts up to 300 kilowatts. There are systems out there that's very exquisite, extremely expensive, and not as reliable, not as effective that you could grow. We started to focus on the middle of the market because we think that's the sweet spot initially. We plan to go down on the kilowatts, the lower end, as well as on the high end. It is the best-performing system out there. It's been in the news quite a bit, and we are actively pursuing that. It's the only system that I know that the FAA has tested against commercial airliners. They just published a report recently, literally weeks ago, and said that the AV system is actually – so that's the spot we're all focused on, but we're going to go up and down the food chain as well.

Yeah, and I guess how is the range? I know you did the demonstration in Albuquerque in which you fried a quadcopter. with your Locust, but how far is it able to, with a 30 kilowatt system, achieve that type of...

Usually between one to five kilometer range. The sweet spots, depending on how large the target is and what the environmental conditions are and what part of the target you're going to actually hit. The secret sauce to AV is not the laser itself. That's a pretty commoditized item to some extent. We have a lot of suppliers that make that. we don't make the laser itself but we make the system and the secret sauce for us is really the tracking and targeting software that allows a joint light tactical vehicle like a JLTV that the US Army has thousands of them have you know be moving at 30 kilometers an hour 360 degrees constantly surveilling the environment within five kilometers out detecting the drone tracking it and then pointing the laser at it while it's driving and shooting it down within less than three to five seconds that's the business of yeah that's our secret sauce and and this provides the transition you also mentioned how you recently made an

announcement with your freedom eagle missile system and and Sean I think you can provide some color on this and investors are interested in like what is the the timeline in terms of the freedom eagle shifting from you know prototype to low rate initial production to the full rate production and and related to what what he was just saying in terms of the locust having a range of five kilometers what's the range of the freedom eagle missile interceptor yeah thanks Louie we're very excited about this program we won this last year as a competition that we went against Raytheon we were down selected and

chosen to work on this program we're in the development phase now development testing we're working with our customer as fast as we can to get through development safety confirmation testing and move into low rate initial production in about an 18 month time frame following that we'll get into full rate production as quick as we can we just made an announcement about our expansion in our Huntsville facility we're increasing our production capacity we're building out our factory in anticipation for that LRIP and full rate production which will be done in our Huntsville Alabama facility great and And how does the Freedom Eagle system compare to other interceptors on the market in terms of from a price point, but also just spec-wise? Yeah, so it was a specific niche that the Army was looking for to fill a gap of, instead of using those expensive missiles that Waheed mentioned, to take down $20,000, $30,000 drones or any of the low-end ones.

This is a high-performing, high-capable, long-endurance, solid rocket motor capable to take down those key up to group three type platforms so it fills that niche that the army was looking for in the requirement that they had for a kinetic hill of a counter UAS great so it's significantly lower cost then significantly lower cost the full rate production price target by the program requirement is roughly about a hundred and fifty thousand dollars a copy relative to a you know million dollar to five million dollar missile and it is designed from the ground up to address the specific need, group one through three, primarily three, five plus kilometer ranges. And it's the other unique thing you asked about earlier, the chance point, is also it's radar agnostic. So you don't have to have a specialized, you know, exquisite radar system that costs tens of millions of dollars. You can marry this with any radar that the site has. It works with a lot of different systems.

And that was a very specific requirement for the US Army where many other missile systems have a very exclusive relationship and integration requirement with a particular type of radar if you don't have that it's a lot more money it's a lot more work to a lot of sites so I think it will be very important this capabilities it's a capability gap today that needs to be filled definitely and in addition to expanding capacity for your freedom Eagle missile interceptor you've also announced major plans to expand switchblade capacity in Salt Lake City are you seeing the demand signals that the orders will come for you to utilize that switchblade capacity yes so

we announced the Salt Lake facility build out I think last year we're continuing to build that out we're designing the factory from the ground up literally building it to our specs it's going to add about a two billion dollar capacity of additional revenues that we can bring in through our switchblade and other product families can be built in Salt Lake as well we recently announced our down select on the lasso program the sb 400 solution will be built in salt lake city our switchblade 600 will be built in salt lake city our mayhem product will also be built there we're seeing demand domestically with the u.s military socom u.s army internationally for military sales and direct commercial sales all for our special product family so we're we're going to build the factory and the capability in southern california we're going to shift it to Salt Lake once that factory is up and running later this calendar year and have a dual capacity to be built in both Southern California and Salt Lake.

Great. And at the beginning of our Q&A session, I was discussing or we were discussing how the Department of War was considering making investments in drone companies. And one of the themes over the past six or seven months has been the desire to quadruple production of the top 15 missile programs. I was wondering like how does the Department of War view the switchblade like in the context of like these very expensive missile interceptors and that it seems somewhat paradoxical that the Department of War is citing how like a PAC-3 interceptor is too expensive and how you've come up with the Freedom Eagle missile at a fraction of the cost but the Department of War still is looking to quadruple production of these more expensive missile systems. But I'm wondering like is it possible that the Department of War could come along over the next few weeks and designate the switchblade as one of those top 15 missile systems and task you with quadrupling the production of the switchblade because like for the past, I think five or six years, you know, you've talked about the potential for the switchblade to have the program of record status and it seems as though those missile systems have that status. And so I was wondering, you know, where does the switchblade sit in terms of the importance for, you know, the Army?

So it's a very, very interesting point you're making because, like you said, first of all, the short answer is this is a very, very new category for the department. Pac-3 missiles and Patriots and Javelins have been around for decades and decades. And their use cases, they're well known to the military, what I call, force structure. And we do need more of those because probably the most misunderstood fact or critical point with the general public in general, not this crowd, but the U.S. public domain, is how far behind we are in the country in our national security competitiveness. and so how fast and aggressive China and some of our other adversaries have been investing to literally give U.S. a very serious run for our, you know, freedom and safety. So we need those missiles to go up. We've actually doubled, quadrupled production in the last two years aggressively on our own dime, primarily based on demand signals and the orders that we've received, and we've been shipping and we're doing that. US military also paid us some dollars they've actually funded us not huge amounts small amounts to expand and accelerate double the production of switchblade 600 again recently we announced that a little while ago and so we've been doing that but I do think that since it's a new category the the ramification of what the use cases are and how it gets lost when you're so much in a hurry and all that I do believe that that moment eventually is going to come you know so we can look at the portfolio we have a switchblade 300 400 500 mayhem and then also 600 and red dragon so we have a portfolio that we've developed on our own primarily our own dime in the last few years with our own in dollars shareholders money and develop this franchise in this category that didn't exist before ukraine right essentially uh and i think it's going to be a few more years until that that moment comes because this is it's just picking up So I think over time, we see a lot of demand signals, not from the U.S. alone, but also from our allies across the world, that we're going to need tens of thousands of these, not just thousands of these in the future. And I think that point is coming. So Mayhem, which is the Switchblade 500, for example, is designed to be mounted on any type of other asset. You can put it on a helicopter. You can mount it on an airplane. You can mount it on a ground vehicle. So it improves its versatility to go on existing platforms dramatically. And that is other ways that we can expand the use cases and adoption of the looting munitions in the military.

And what enables the Mayhem to be launched from those different types of platforms? Is the launcher different for the Mayhem than versus Switchblade 600 and 400?

Yeah, primarily that's the biggest difference. When Switchblade was initially developed, it was for dismounted troops. There's two of us or three of us or a single one of us. We carry this in our rucksack or a couple of boxes. We're going to put it in the back of a pickup truck. We're going to go drive somewhere, take it out, within minutes launch a weapon system from a ground dirt floor. That's a different sort of a design architecture and concept than I have, you know, all kinds of different platforms, and I want to mount this just like I mount any weapon system. So there is a tube, it's called a common launch tube, CLT, that the Army is standardized on and this is going to go into that exact same tube. The mounting mechanism for this is very similar to any other missile that the Army uses for that and it could be used on a lot of different platforms. So the new helicopter that they've got in development, the airplanes that they have, ships, boats, et cetera, could benefit from this common launch tube capability.

Yeah, and are you, I think in different pressure releases, you indicated that the Mayhem system is competing for the launched effects competition. Do you already have orders for the Mayhem, or is that something you anticipate in the future?

Yes, so it is true that this product is competing and is a competitor or an offer to the U.S. Army for the launched effects. The whole mission of Launch Effect is exactly that, launching effects from various different platforms. And before that, there was no concept of having us loading munitions being launched, but now there is, because it's been proven. Specifically, whether we have orders or not, I can't comment because it's a competitive process. We feel very good about our chances here and opportunity.

It is developed from the ground up to be specifically developed for this opportunity for the Army, me and we look forward to the progress that we're making and you know our products battle proven we this stuff is we've been shipping thousands of them effectively and just created a whole category right and and I know you have significant orders for the switchblade 600 the 400 you recently announced a contract for the Red Dragon so you're definitely seeing switchblade orders in addition you also were awarded a I think it was a 118 million dollar contract for your new P550 system Sean and I was wondering how is that program ramping

with the army and what are the use cases between the P550 and and the jump 20 yeah so the P550 is designed specifically for their army long-range reconnaissance program we were selected for that we've been operating and delivering against the long-range reconnaissance program P550's got other international customers that we've already gotten awards for and delivering against jump 20 and the jump 20 X product we launched that part about a year ago with the the X version of it That is specifically designed for you know maritime operations We've been awarded through the muse the marine expeditionary units We've gotten on to the US Navy's cocoa contracts or with the Coast Guard So that product has gotten tremendous adoption from a services platform operating in the harsh maritime environments We've also won multiple international programs with the Jump 20 platform, and we're anticipating the Army brigade level program, the replacement for the FTUS program, that we think the Jump 20X will be a perfect solution for.

And before I, I forgot to ask a question that I just thought of, I think Northrop Grumman earlier this week announced the milestone for their Jackal system, in which I think you co-develop that system with them and can you provide any update in terms of what they announced and do you continue to be involved there sure so as I said the category of loading munition has become it's new and it's growing and it's just a whole new category similar to how small UAS was 20 years ago and similar to now probably laser weapon systems going to be the same in the next five years a jackal was a version of switchblade that essentially we co-developed

and teamed with Northrop for a program called LRPM, Long Range Precision Munition from the U.S. Army again. It's a large program. And the idea behind that is to have, I guess, the one difference between a loading munition like Switchblade, which is electrically powered, and a standardized missile is that it doesn't have a rocket propeller or a turbo propeller that takes there to go there fast, to get to the target fast. It's a little slower flyer once it gets to it. It has advantages when it gets there. and even when it on its way does so LRPM was designed to be a sprint loitering munition so it has a jet propulsion that basically turbo that gets there fast at 0.5 Mach almost that fast and then once it gets there it slows down and basically behaves as a switch weight and so that particular category of missile doesn't exist and it's we're the first one that's developing it and it has significant implications because if you're on a moving platform a helicopter standing at a standoff distance you see an enemy tank you don't really want to wait 10 minutes or 20 minutes you want to get there within less than a minute and you want to shoot something that gets there but then you want to have the maneuverability of the switchblade that you can go take it out in a variety of different ways angle sides etc and so that is what the announcement that Northrop made we're doing primarily the actual air vehicle the propulsion and also the the some of the controls come from Northrop and we're teaming together we're very happy and very very pleased with the fact that we're gonna make this another what I call groundbreaking new capability that doesn't exist in the portfolio of missiles that we have in the US military right and Sean I was wondering how has international the

international demand environment evolved over the past year I know you can't talk about specific conflicts but previously you've discussed opportunities and contract wins in the Indo-Pacific and you've discussed your role in in Europe with the Ukraine conflict have you seen customers increasingly looking for for sovereign manufacturing and what's the overall demand environment from a high level yeah we've been doing business internationally for decades we know what it takes to to win internationally we've worked through offsets and industrial participation agreements we have in-country reps we

have AV personnel working country we have legal entities established in a few countries we've done joint ventures we've acquired a company our tell Rob is in Germany so we know what it takes to win the business and what it takes to win specific country requirements and we continue to work multiple different opportunities globally in the Pacific as well as European opportunities and you know we're confident we have the ability to team local production contract manufacturing as needed we're able to flex and scale to meet our customers needs great and I believe that is all the time that we have so thank you why heat and Sean thank you Denise and we're going to reconvene in the Adler room on

the second floor to go more in depth into many of these topics so thanks everybody