AeroVironment, Inc.
Q1 2022 Earnings Call Transcript

Published: 8 Sep 2021

[Operator:]

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.

[Jonah Teeter-Balin:]

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?

[Wahid Nawabi:]

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 that 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 it's 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 it's 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 solution. 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 it's 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 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 it's 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 and 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 it's 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 it's 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. Kevin?

[Kevin McDonnell:]

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

[Wahid Nawabi:]

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

[Operator:]

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

[Peter Skibitski:]

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.

[Wahid Nawabi:]

Hi, Pete. Thank you for the questions. Yes, I could shed some light on both items. In terms of the continuing resolution with the U.S. government's budget, we have considered that into our guidance. Obviously, the situation is fluid and it could change but we believe that despite a continuing resolution, I believe that we're on track to achieve our fiscal year results as we said earlier on the call. And then, obviously, our record backlog sets us really well for that as well going into the second and third and fourth quarter. In terms of the small UAS business being down for the first quarter, as I mentioned on my remarks, it's really important to make sure that we keep an eye on the longer-term optics and picture of these businesses. The lower revenue on Q1 for small UAS was specifically because of timing of some specific contracts, that's it. Because the business is made up of pretty large chunks of individual contracts, the timing of any one of those, either previous year or this quarter or next quarter, could have a significant sort of change in those optics for the quarter. But if you look at the longer-term picture, you will see that we have growth in most -- all of our core businesses, especially in small UAS and TMS. As Kevin mentioned in his remarks, in the last several quarters, the trend line roughly looks a little bit less than 12% growth in our core businesses.

[Kevin McDonnell:]

LTM basis.

[Wahid Nawabi:]

LTM basis, yes, right. And this year, in our guidance, we expect our -- both our TMS and small UAS businesses to grow this year over last year. So overall, I feel actually really good about it. We're engaged in a lot of opportunities, both domestically and internationally and we'll keep you updated on that.

[Peter Skibitski:]

No, I appreciate the comment about guidance, in particular. That's helpful. And then just, is international travel restrictions in COVID, is that still any kind of meaningful headwind to closing sales for -- I guess, for any of your products at this point?

[Wahid Nawabi:]

Yes, Pete, that has remained to be a challenge. We have -- as I said on the remarks, we have addressed those challenges extremely well so far. We are able to get into these countries and they are able to travel but they are very limited and very difficult still. Many of the countries in the Middle East, the process is extremely sort of long and challenging. And as well, a lot of customers are still hesitant to allow their teams to travel as well as to allow visitors to come to their country and their sites. That's also true in many of the U.S. government sites. Many of the sites are still very careful and cautious in terms of allowing folks to get in but we expect that to change, obviously, overtime as vaccination becomes more and more the requirement across U.S. duty.

[Peter Skibitski:]

Okay, great. Thanks for the update, guys.

[Wahid Nawabi:]

You're welcome, Pete.

[Kevin McDonnell:]

Thanks, Pete.

[Operator:]

Thank you. And our next question comes from Peter Arment from Baird. Your line is now open.

[Peter Arment:]

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

[Wahid Nawabi:]

Hi, Pete.

[Peter Arment:]

Wahid, we get this question a lot regarding just as less boots come out of theater -- more boots come out of theater, how your kind of MUAS business is positioned to kind of perform for kind of services on demand. How do you characterize? I know you've won some recent awards in that business.

[Wahid Nawabi:]

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 is quite positive. We believe that the drawdown could actually increase ISR services in that region and many other regions around the world. As 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.

[Peter Arment:]

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?

[Wahid Nawabi:]

Sure. So as you know, we've received our first export license. We're in the process of actually building that product and shipping it to our customer. We are engaged with multiple additional countries who not only have shown interest in that capability but also are starting the process of actually making a request for acquisitions and we have started that process with, as I said, multiple countries. As I said before, it is a matter of when versus if that we're going to get more countries to join our international customers for Switchblade. That's specifically related to Switchblade 300. We've also now -- since the announcement of our Switchblade 600, we've seen interest from international countries in the Switchblade 600 ground launched as well. While that's much earlier in it's process but that also represents a pretty significant opportunity for us long term. And with U.S. troops actually having less boots on the ground, Peter, we think that the international countries would have more needs of this capability in order to defend themselves and keep themselves protected.

[Peter Arment:]

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.

[Kevin McDonnell:]

We haven't changed that.

[Peter Arment:]

Okay, thank you.

[Operator:]

Thank you. And our next question comes from Austin from Canaccord. Your line is now open.

[Unidentified Analyst:]

Hi, Wahid. How are you?

[Wahid Nawabi:]

Hi, Austin. Pretty good. How about yourself?

[Unidentified Analyst:]

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?

[Wahid Nawabi:]

So, Austin, both of those two opportunities are significant for us. They both represent a significant -- both -- long-term opportunities for AeroVironment. The MEUAS, as you can see over the last several quarters, our acquisition of Arcturus has been the newcomer into that contract for the last two years. And they have consistently have gained share against the incumbents -- there are two major primary incumbents in that contract. And so, we feel good about the fact that we're gaining share and I expect that to either stay the same or continue. Obviously, it's very competitive. And I believe that the competition is going to get more and more aggressive in the future. But that's definitely a position that we enjoy, a market-leading position and we continue to actually grow in that. Additionally, on the FTUAS side, that's a brand-new multi-hundred million dollar long-term program of record. The U.S. Army has close to over $140 million in the budget to sort of accelerate that program in the next government fiscal year which is 2022 for the government. And we are one of the downselects and we expect that to be a significant opportunity for us for growth. But regardless of that, we also expect our Small UAS to grow, our TMS to grow, as well as our other acquisitions that we've done to grow this year and beyond.

[Unidentified Analyst:]

Okay, great. And just when we think about TMS here, as the budget is sort of being pivoted toward Pacific warfare and potentially countering China. Do you anticipate, or have you guys been bidding more on the -- either for Blackwing or for the Ship 1 bearing of the Switchblade 600 for more naval platforms?

[Wahid Nawabi:]

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.

[Unidentified Analyst:]

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

[Wahid Nawabi:]

Thank you, Austin.

[Kevin McDonnell:]

Thank you, Austin.

[Operator:]

Thank you. And we have a follow-up question from Peter Skibitski from Alembic Global. Your line is now open.

[Peter Skibitski:]

Yes. Thanks, guys. Just on HAPS, I want to make sure I understand where we're at. How much more of financial backing is needed, if any, to finish development? Or -- sorry, are you looking for more financial sponsors for development? Or is it more so for a follow-on production? And when do you think you'll complete kind of the design and testing of the new design?

[Wahid Nawabi:]

Sure. So, I'm so glad that you asked that question, Pete, because it's a very critical growth opportunity for us and it deserves some sort of color on it. We have already secured in the last quarter very -- toward the end of last fiscal year, we secured a five year master agreement with SoftBank. Essentially, this blanket master agreement allows for SoftBank to place multiple orders over the next five years with AeroVironment. The first one of those orders which we just recently secured also during the last few days of the last quarter -- last fiscal year, was about a $51 million contract that will essentially fund us for a good amount of a year to 15 months. The period of performance is roughly 15 months. The purpose of that contract is to essentially design the next-generation airplane, basically take the learnings of the first set of five flights and then incorporate that into the next design or the ultimate design that is going to be certifiable by entities such as FAA and other agencies around the world. That funding is sufficient. And regardless of whether we get another investor or not, SoftBank and AeroVironment is committed to pursue this opportunity on our own. In terms of additional investment, when we started -- formed the business plan for HAPSMobile with SoftBank, both parties agreed that after Phase 1 which we've now successfully completed, we will start to engage and look for additional investors to see if they want to come and join the HAPSMobile joint venture. The reason for that was primarily because we believe the HAPSMobile joint venture is a unbiased global entity that could service and connect billions of people around the world. So other telecom operators, other strategic investors and financial investors will most likely have interest to invest in it. Both SoftBank and AeroVironment stays open to that. Should there not be an investor, we're not eager to get one. If we don't, that's still OK because both SoftBank and AeroVironment is committed to going at it the way we are. But that was the original plan and we'll continue to go down that path. And so, the last part of your question as to how long we will be done with it, we expect this design phase to be finished within another 12 months to 15 months. And we also expect to build another airplane. This is the third airplane which is going to be the basis of the certification with the FAA. And we've already started that process with the FAA and we're working the materials and supply chain issues to make sure that we can build that airplane on a timely manner.

[Peter Skibitski:]

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

[Wahid Nawabi:]

You're welcome.

[Peter Skibitski:]

Let me ask a follow-up. Can you give some -- another program update. Switchblade 600, you're also trying to integrate that with the Kratos Valkyrie, if I recall. Just was wondering kind of how that's coming along and if there's a completion date that you're scheduled to hit for that?

[Wahid Nawabi:]

Sure. So, we're working with Kratos on both Switchblade 300 and 600 to be integrated with some of their platforms, especially the Valkyrie platform for multiple programs that they are pursuing. That engagement is going well but it's still early. The reason why I say it's early is because, first and foremost, they have to win that program of record which they're obviously doing really well. And as they win that program, then, a part of that development is for the U.S. Air Force to start integrating our drones, our loitering missiles with that platform. Both Kratos and AeroVironment really believe in that capability. Their customer, based on their interactions, have very positive feedback on that. And -- but it is a slower process and a more long-term engagement rather than a short term. That's just one of many. We're also engaged with General Dynamics Land Systems to integrate Switchblade with their ground platforms for programs such as the OMFV, Optionally Manned Fighting Vehicle for the U.S. Army and many other opportunities that we're going to be competing in the future.

[Peter Skibitski:]

Okay, great. And I promise, last one for me. It sounds like not a lot of guys around but the two competitive losses, the Air Force EOD competition with Telerob and then the Marine Corps OPF-M, have you -- last time you reported out, you hadn't sort of gotten a debrief from the customer yet to get a feel for what they prefer or didn't prefer about the selected competition. Did you get a chance to get debriefed on those two programs yet? And has it -- without necessarily sharing too much with us, do you feel that you've learned kind of what the customer set was looking for on those two competitions at this point?

[Wahid Nawabi:]

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.

[Operator:]

Thank you. And our next question comes from Louie DiPalma from William Blair. Your line is now open.

[Louie DiPalma:]

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?

[Wahid Nawabi:]

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 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.

[Louie DiPalma:]

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?

[Wahid Nawabi:]

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 site 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.

[Louie DiPalma:]

Sounds good. Thanks, Wahid.

[Wahid Nawabi:]

You're welcome, Louie.

[Kevin McDonnell:]

Thanks, Louie.

[Operator:]

Thank you. And our next question comes from Brian Ruttenbur from Imperial Capital. Your line is now open.

[Brian Ruttenbur:]

Yes. Thank you very much. I just wanted to clarify something that Pete Skibitski had asked and just wanted to drill down a little bit on the HAPS. The third aircraft and I heard a couple of numbers and I'm just trying to narrow down what I just heard. Is it 24 months that you expect an order? Or is it you expect to produce an aircraft -- a third aircraft within the next 24 months? I guess that number just stuck out to me. Maybe you can just re-highlight that.

[Wahid Nawabi:]

Sure. Brian, this is Wahid. So we have already secured a $51 million plus contract award from SoftBank. The scope of that is to implement the learnings from the first two aircraft and the first five flights into the design of the third aircraft and also start the development of the third -- of the production of the third aircraft. We expect to actually make the airplane not to secure a contract in 24 months. So usually, the first two airplanes that we made -- to give you a point of reference, we built the two airplanes in less than two years -- less than two year time frame. So really, it depends on, first, getting the design completed and locked in the configuration and then engaging with FAA to make sure that serves as the basis of the certification airplane and then start building the airplane and buying material for it.

[Brian Ruttenbur:]

Great. Thank you very much.

[Wahid Nawabi:]

You're welcome, Brian.

[Operator:]

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

[Wahid Nawabi:]

Thank you, everybody.