AeroVironment (AVAV) is trading sharply higher today (+17%) after reporting a much better than expected 1Q18 (Jul) earnings report. In case you're not familiar with AVAV, a little background would help. AVAV is primarily a supplier of small unmanned aircraft systems (UAS), or drones, and tactical missile systems.
Its primary customers are the US Dept of Defense and allied military services although it's branching into the commercial market as well. AVAV also has an Efficient Energy Systems (EES) segment which supplies charging systems for electric vehicles (EVs). Approximately 86% of FY17 sales came from its UAS segment and 14% from its EES segment.
Looking ahead, management says industry trends are favorable heading into FY18. The global threat environment remains very dynamic, requiring highly capable small military teams that can operate flexibly in a wide variety of theaters around the globe. Intelligence, surveillance and precision-strike offerings like AVAV's small UAS and TMS offer what the company sees as game-changing capabilities that help troops obtain actionable intelligence. It's not just the US Defense Dept, demand from US allies remains strong as well. Also, AVAV sees good opportunity for its expanding commercial business as AVAV sees a global market valued in the billions of dollars for drone-based commercial systems.
Turning to the JulQ results, AVAV reported a loss as expected but it was much narrower than the market was expecting at $(0.19) per share. This compares nicely to the $(0.40)-(0.32) guidance provided on the AprQ call. And it was narrower than the $(0.51) loss in the year ago period. Revenue rose 21.0% year/year to $43.8 mln, which was at the higher end of the $40-44 mln guidance provided on the AprQ call. AVAV reaffirmed guidance for FY18, it sees EPS of 0.45-0.65 and revenue of $280-300 mln.
On the call last night, AVAV said about its small UAS business, that it continues to pursue the Dept of Defense frequency relocation program, which involves modifying all small UAS and the DoD fleet to operate on new radio frequencies. Additionally, AVAV delivered the first 30 smart systems to its U.S. DoD customer and the company is focused on preparing for an upcoming competition for the U.S. Army Soldier Borne Sensor program, which should begin this fiscal year.
Also in the quarter, AVAV shipped its first Puma AE and Raven systems to the US Customs and Border Patrol. Beyond US borders, AVAV signed a multi-year contract with the Australian Defense Force for their acquisition of Wasp AE systems along with value-added support services and content from its Australian partners. As part of this contract, AVAV is establishing an international certified logistics and repair facility with its Australian partner. In addition to Australia, AVAV also added one new Middle East customer in JulQ. AVAV continued to experience growing international demand for a family of small UAS, and it expects this demand to contribute meaningfully to its FY18 results.
Turning to its tactical missile systems business, its Switchblade loitering missile program continues to protect US forces in dangerous environments. Its multiple Switchblade variants include Blackwing, which is generating more interest after successful deployment on US Navy submarines. That interest is translating into procurement dollars to extend deployment and improve the overall performance of the solution set.
In its EES segment, its industrial EV charging business secured a new contract and initiated shipments for a global carrier at one of the nation's largest international airports. AVAV also completed shipments of a major Asian airport with the fully network charging and ground support equipment battery management systems. In its passenger EV charging business, AVAV surpassed 61,000 Level 2 charging systems deployed in North America.
In sum, investors are quite pleased with the JulQ results. The stock has been ramping since AVAV reported a huge 4Q17 (Apr) earnings beat in late June and they followed that up with a big EPS beat in 1Q18 (Jul), led by strong growth in its UAS segment.