AeroVironment, Inc. (NASDAQ: AVAV) today reported financial results for its second quarter ended October 26, 2019.
Revenue of $83.3 million, up 14 percent year-over-year
Earnings per diluted share of $0.31 up $0.02 year-over-year; non-GAAP earnings per diluted share of $0.34, up $0.05 year-over-year
Funded backlog of $146.7 million
'AeroVironment delivered strong results for the second fiscal quarter of 2020 with $83.3 million in revenue and $0.34 of non-GAAP earnings per diluted share, representing year-over-year increases of 14 and 17 percent, respectively,' said Wahid Nawabi, AeroVironment president and chief executive officer. 'We made significant progress across our portfolio during the quarter through launching our new Puma LE system, winning international orders worth more than $20 million, and achieving successful first and second flights of the solar-powered HAWK30 HAPS unmanned aircraft system. Our business remains strong, our growth portfolio continues to advance and our team remains committed to executing our proven value creation strategy.'
FISCAL 2020 SECOND QUARTER RESULTS
Revenue for the second quarter of fiscal 2020 was $83.3 million, an increase of 14% from second quarter fiscal 2019 revenue of $73.0 million. The increase in revenue was due to an increase in product sales of $10.3 million.
Gross margin for the second quarter of fiscal 2020 was $35.2 million, an increase of 24% from second quarter fiscal 2019 gross margin of $28.4 million. The increase in gross margin was primarily due to an increase in product margin of $6.1 million and an increase in service margin of $0.7 million. As a percentage of revenue, gross margin increased to 42% from 39%. The increase in gross margin percentage was primarily due to an increase in the proportion of product revenue to total revenue and a favorable product mix, partially offset by an increase in inventory reserve charges.
Income from continuing operations for the second quarter of fiscal 2020 was $8.1 million, an increase of 21% from second quarter fiscal 2019 income from continuing operations of $6.6 million. The increase in income from continuing operations was primarily a result of an increase in gross margin of $6.8 million, partially offset by an increase in research and development expense ('R&D') of $2.7 million and an increase in selling, general and administrative ('SG&A') expense of $2.6 million.
Other income, net for the second quarter of fiscal 2020 was $1.4 million compared to other income, net of $2.4 million for the second quarter of fiscal 2019. The decrease in other income, net was primarily due to a decrease in transition services performed on behalf of the buyer of the discontinued Efficient Energy Systems ('EES') business.
Provision for income taxes for the second quarter of fiscal 2020 was $1.1 million compared to $1.2 million for the second quarter of fiscal 2019.
Equity method investment loss, net of tax for the second quarter of fiscal 2020 was $0.9 million compared to $0.8 million for the second quarter of fiscal 2019. The equity method loss is associated with our investment in the HAPSMobile Inc. joint venture formed in December 2017.
Net income attributable to AeroVironment for the second quarter of fiscal 2020 was $7.5 million, an increase from second quarter fiscal 2019 net income attributable to AeroVironment of $6.1 million.
Earnings per diluted share from continuing operations attributable to AeroVironment for the second quarter of fiscal 2020 was $0.31 compared to earnings per diluted share from continuing operations attributable to AeroVironment for the second quarter fiscal 2019 of $0.29.
Non-GAAP earnings per diluted share from continuing operations was $0.34 for the second quarter of fiscal 2020 compared to Non-GAAP earnings per diluted share from continuing operations for the second quarter of fiscal 2019 of $0.29.
FISCAL 2020 YEAR-TO-DATE RESULTS
Revenue for the first six months of fiscal 2020 was $170.2 million, an increase of 13% from the first six months of fiscal 2019 revenue of $151.0 million. The increase in revenue was due to an increase in product sales of $20.9 million, partially offset by a decrease in service revenue of $1.7 million.
Gross margin for the first six months of fiscal 2020 was $76.4 million, an increase of 25% from the first six months of fiscal 2019 gross margin of $61.0 million. The increase in gross margin was primarily due to an increase in product margin of $16.0 million, partially offset by a decrease in service margin of $0.6 million. As a percentage of revenue, gross margin increased to 45% from 40%. The increase in gross margin percentage was primarily due to an increase in the proportion of product revenue to total revenue and a favorable product mix, partially offset by an increase in inventory reserve charges.
Income from continuing operations for the first six months of fiscal 2020 was $26.9 million, an increase from the first six months of fiscal 2019 income from continuing operations of $20.8 million. The increase in income from continuing operations was primarily a result of an increase in gross margin of $15.5 million, partially offset by an increase in R&D expense of $5.0 million and an increase in SG&A expense of $4.3 million.
Other income, net, for the first six months of fiscal 2020 was $3.1 million compared to other income, net of $11.7 million for the first six months of fiscal 2019. The decrease in other income, net was primarily due to a one-time gain from a litigation settlement of $0.26 in fiscal 2019 and a decrease in income from transition services performed on behalf of the buyer of the discontinued EES business.
Provision for income taxes for the first six months of fiscal 2020 was $3.2 million compared to provision for income taxes of $3.8 million for the first six months of fiscal 2019. The decrease in provision for income taxes was primarily due to the decrease in income before income taxes.
Equity method investment loss, net of tax, for the first six months of fiscal 2020 was $2.2 million compared to $1.4 million for the first six months of fiscal 2019 associated with our investment in HAPSMobile, Inc. joint venture formed in December 2017.
Net income attributable to AeroVironment for the first six months of fiscal 2020 was $24.6 million, a decrease from the first six months of fiscal 2019 net income attributable to AeroVironment of $33.4 million. The first six months of fiscal 2019 included a one-time gain from a litigation settlement of $0.26.
Earnings per diluted share from continuing operations attributable to AeroVironment for the first six months of fiscal 2020 was $1.02 compared to earnings per diluted share from continuing operations attributable to AeroVironment for the first six months of fiscal 2019 of $1.14. The first six months of fiscal 2019 included a one-time gain from a litigation settlement of $0.26.
Non-GAAP earnings per diluted share from continuing operations was $1.08 for the first six months of fiscal 2020 compared to Non-GAAP earnings per diluted share from continuing operations for the first six months of fiscal 2019 of $0.88.
BACKLOG
As of October 26, 2019, funded backlog (remaining performance obligations under firm orders for which funding is currently appropriated to us under a customer contract) was $146.7 million compared to $163.9 million as of October 27, 2018.
FISCAL 2020 - OUTLOOK FOR THE FULL YEAR
For fiscal 2020, the Company continues to expect to generate between $350 million and $370 million in revenue and between $1.35 and $1.55 in earnings per diluted share. This financial guidance assumes approximately 5% ownership of the HAPSMobile joint venture and includes the expected losses of Pulse Aerospace, which the Company acquired on June 10, 2019. The Company continues to expect non-GAAP earnings per diluted share, which excludes acquisition related expenses and amortization of acquired intangible assets to be between $1.47 and $1.67.
The foregoing estimates are forward looking and reflect management's view of current and future market conditions, including certain assumptions with respect to our ability to obtain and retain government contracts, changes in the timing and/or amount of government spending, changes in the demand for our products and services, activities of competitors, changes in the regulatory environment, and general economic and business conditions in the United States and elsewhere in the world. Investors are reminded that actual results may differ materially from these estimates.
ABOUT AEROVIRONMENT, INC.
AeroVironment (NASDAQ: AVAV) provides customers with more actionable intelligence so they can proceed with certainty. Based in California, AeroVironment is a global leader in unmanned aircraft systems and tactical missile systems, and serves defense, government and commercial customers.
FORWARD-LOOKING STATEMENTS
This press release contains 'forward-looking statements' as that term is defined in 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.
Factors that could cause actual results to differ materially from the forward-looking statements include, but are not limited to, reliance on sales to the U.S. government; availability of U.S. government funding for defense procurement and R&D programs; changes in the timing and/or amount of government spending; our ability to perform under existing contracts and obtain new contracts; risks related to our international business, including compliance with export control laws; potential need for changes in our long-term strategy in response to future developments; the extensive regulatory requirements governing our contracts with the U.S. government and international customers; the consequences to our financial position, business and reputation that could result from failing to comply with such regulatory requirements; unexpected technical and marketing difficulties inherent in major research and product development efforts; the impact of potential security and cyber threats; changes in the supply and/or demand and/or prices for our products and services; the activities of competitors and increased competition; failure of the markets in which we operate to grow; uncertainty in the customer adoption rate of commercial use unmanned aircraft systems; failure to remain a market innovator and create new market opportunities; changes in significant operating expenses, including components and raw materials; failure to develop new products; the extensive regulatory requirements governing our contracts with the U.S. government; risk of litigation, including but not limited to pending litigation arising from the sale of our EES business; the impact of our recent acquisition of Pulse Aerospace, LLC and our ability to successfully integrate it into our operations; product liability, infringement and other claims; changes in the regulatory environment and general economic and business conditions in the United States and elsewhere in the world. For a further list and description of such risks and uncertainties, see the reports we file with the Securities and Exchange Commission. We do not intend, and undertake no obligation, to update any forward-looking statements, whether as a result of new information, future events or otherwise.
NON-GAAP MEASURES
In addition to the financial measures prepared in accordance with generally accepted accounting principles (GAAP), this earnings release also contains a non-GAAP financial measure.
Contact:
Tel: +1 (805) 520-8350
AEROVIRONMENT, INC. 
