When drone-aircraft maker AeroVironment (NASDAQ:AVAV) last week reported fiscal first-quarter 2015 earnings results, headlined by a $0.16-per-share loss, investors were not amused.
The loss, after all, was twice what Wall Street analysts had told investors to expect. Combined with warnings from management that investments in new product lines would eat up essentially all the company's operating profit this year, and with one analyst predicting that earnings this year would approximate "zero," it's little wonder AeroVironment lost more than 10% of its market cap over the next two days. But was the news as bad as it sounded?
To find out, we took some time to comb through what AeroVironment executives told analysts in its after-earnings conference call -- looking for "read between the lines" insights into what's really going on at the company.
What follows are the five most important tidbits we gleaned from this review. All quotes are from CEO Tim Conver. So if you want to get the inside skinny on AV -- read on.
Business is booming
During the first quarter, our team delivered results that met and exceeded our expectations. Revenue for the quarter was about $52 million and gross profit was about $14 million, up 18% and 12%, respectively, year over year.
With AeroVironment reporting first-quarter sales growth that was barely half as fast as what it had touted in the preceding fiscal quarter -- and with that sales growth yielding little more than a big generally accepted accounting principles loss to boot -- you could be forgiven for thinking that all is not well at AV. In fact, however, there were at least a couple bright points to the report.
Not least among these was that revenue grew in the first quarter -- no mean feat in today's defense spending environment. And as for the loss, well, a loss is never good news. But at the very least, it's worth pointing out that AeroVironment's first quarter 2015 loss was only half as big as the loss it reported in the same period of fiscal 2014.
Really, really booming
Funded backlog increased by 25% over last year to $82 million, $45 million of the $68 million bookings in the first quarter were army orders for spares and raven upgrades. Strong bookings are continuing with the additional $52 million booked in the second quarter to date.
Yes, you read that right. AeroVironment added $68 million worth of orders for new products and services in fiscal first-quarter 2015. And, yes, that was more new business added to the backlog than AeroVironment took out of backlog in the form of revenue collected during the quarter (the $52 million noted above).
Even better news was that, barely one month into the current quarter, the company has already added more than 76% of the business it won in all of the preceding three-month period. Were it to maintain this pace, AeroVironment could wind up with more than $150 million in new orders by the end of second quarter.
Granted, that would be a very neat feat -- and is far from certain to happen. What is certain, though, is that with so much backlogged work "in the bag" (so to speak), AeroVironment is now virtually guaranteed to collect at least 80% of the revenue it planned for this fiscal year -- and it has more than half the year left to scrounge up the remaining 20% of its targeted revenue.
And it could keep on booming for quite some time
Small unmanned aircraft systems, or small UAS, are now standard requirements for equipping ground forces throughout the Department of Defense, and we expect this capacity will continue to be a priority.
There's been a lot of navel gazing lately about how the defense cutbacks in Washington, D.C., will hurt defense contractors' revenues going forward. AeroVironment management, however, doesn't seem too concerned. If small UAS become de rigeur equipment for soldiers and Marines -- right up there with the standard-issue M16A4 rifle and size 10 boots -- then it's likely that whatever changes happen to the military going forward, AeroVironment drones, at least, will still be part of the picture for years to come.
But away from the war zones, all is quiet
Commercial applications for unmanned airplane systems represent emerging global market with multibillion-dollar potential.
Emphasis on potential. As in: despite all the hype, AeroVironment is not yet winning a whole lot of orders for commercial, civilian-use drones. Nonetheless, Conver continues to entertain high hopes, noting that "calculated total economic impact of unmanned airplane system integration in the United States alone [could reach] $82 billion over 10 years."
Whether this potential will ever be realized, and how soon that might happen, remain to be seen. While AeroVironment's groundbreaking partnership with BP to use a drone to survey the energy giant's operations in Prudhoe Bay, Alaska, shows there's promise in the concept, to date it remains little more than a pilot project.
Here comes [more] boom
The U.S. Army received $1.7 billion in appropriations for missile procurement and support in government fiscal 2014, although U.S. Air Force received $4.3 billion. We intend to address this multibillion-dollar market...
AeroVironment's Switchblade UAV, in contrast, offers much more immediate potential to generate meaningful revenue for the company. In fact, Conver mentioned to one analyst on this month's call that "Switchblade total revenues almost doubled last year." What's more, while Conver confirmed that the "deliverable hardware element of last year's purchase orders [from the U.S. military are now all] completed ... we have ongoing contracts for continued development, support, and testing."
Reading between the lines, this means two things: First, that AeroVironment will actively seek to win additional follow-on orders for its Switchblade guided-missile UAV. Second, even absent such orders, the company expects to get at least some revenue from the military as it works to improve on early versions of the product, and performs maintenance and testing to keep the existing inventory of Switchblades in good working order.
So there -- that little insight right there shows why it sometimes "pays" to listen to a company's post-earnings conference call with analysts. And lucky you -- you didn't even have to!
Rich Smith has no position in any stocks mentioned. The Motley Fool recommends AeroVironment. The Motley Fool owns shares of AeroVironment. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.