AeroVironment Inc at RBC Capital Markets Global Industrials Conference Transcript

The following is excerpted from the question-and-answer section of the transcript.

Question: Ken Herbert - RBC Capital Markets Inc - Analyst : So I think what I'd like to do is ask Wahid to maybe start with just some discussion around some of what he's seeing at a higher level, not so much company specific, but what's behind a lot of the shift that we're seeing change in priorities? And what you're sensing in terms of all of your customers within the Pentagon and on Capitol Hill today, how we should think about this as investors?

Question: Ken Herbert - RBC Capital Markets Inc - Analyst : So that's great. Well, let me ask you this, why do you get a sense there's been so much, maybe animosity is too strong of a word, but so much pushback against the legacy defense primes, and why such an incentive now to bring more competition in. And it seems like almost go out of their way to incentivize companies like yourselves that are disruptive, so to speak. What's behind that?

Question: Ken Herbert - RBC Capital Markets Inc - Analyst : So as I sit here and I think a lot of investors struggle with this, I think there's a belief that at the end of the day, if the US wants certain capabilities, there's only a handful of companies' primes that can produce it at scale, hypersonic weapons and other areas, hypothetically. You're breaking into this. What's the risk that we turn around in two or three years and the government realizes, the Pentagon realizes, okay, we really have no choice but to continue to work with the primes for the vast majority of what we need, and smaller companies like yourself have invested a lot of money and really spent money to school -- spool up. And it's maybe not quite as rewarding as you perhaps thought. Cause I think a lot of your companies like yourself are really having to lean into your own internal R&D, capital, everybody's ramping to add capacity now to support what it's expected to be these big orders. What's the risk that obviously this doesn't materialize?

Question: Ken Herbert - RBC Capital Markets Inc - Analyst : I think one of the -- as we look at the sector, one of the knocks often against the industry is you're always fighting the last war, right? And what's the risk that we take all these lessons from Ukraine, which involved a 1,000 mile front in a heavily ground centric conflict, and what's the risk that some of that falls apart as you try and apply it to other theaters moving forward? And it's always, a trade-off, I know, and a struggle that the that the Pentagon has. But how do you see that playing out?

Question: Ken Herbert - RBC Capital Markets Inc - Analyst : So that's a great point. Let me ask you this though, cause I see a lot of parallels in other industries, as you fast forward 5 or 10 years, and I know you've got a really unique background through coming more from the tech industry versus coming from a defense prime, for instance, but if you think about this in 10 years, who wins? Is it the companies that are making the hardware, or is it the companies that are actually making the software and the AI that empowers all of this? And to what extent do the robotics themselves become commoditized? And how do you -- because we've had a lot of discussions around what makes the Switchblade 600 so successful is obviously your ability to adapt the software and the navigation tools and everything else as the war in Ukraine has evolved. How do you think about how your position or how the industry is positioned from a hardware versus software perspective? And ultimately, when you look at some of the private software companies or public software companies that play in AI and in this area are already getting multiples you could argue that are significantly higher than what hardware companies like yourself are getting, it's certainly higher than ever what a defense prime would get. So how do you think about that evolution playing out?

Question: Ken Herbert - RBC Capital Markets Inc - Analyst : Do you get a sense that the Pentagon or the Department of Defense, based on everything you said is actually in a position now where they fundamentally shifted how they buy software or how they look at buying systems to break the vendor lock and enable upgrades and enable separate sort of software purchasing? Are you -- have you -- we've seen enough sort of nine months into this administration that gives you confidence that these changes will stick?

Question: Ken Herbert - RBC Capital Markets Inc - Analyst : So as you're building aero environment today, how do you manage the growth, and how do you manage avoiding becoming what your lazy legacy competitors represent today. How do you manage that for your business?

Question: Ken Herbert - RBC Capital Markets Inc - Analyst : Well, maybe Kevin, let me maybe pull you in for a minute because you guys could invest a lot of money. You've got a lot of opportunity. You've obviously got quarterly results, shareholder expectations. How do you think about sort of the process for evaluating these opportunities, disciplined to these opportunities because you could lean into 20 different opportunities but obviously that might not be conducive to sort of near term cash flow and near term earnings growth. So as the CFO, how do you think about the ability to manage all of this? And what looks like a really phenomenal opportunity set, but maybe you can't push the thread on everything. REFINITIV STREETEVENTS | www.refinitiv.com | Contact Us consent of Refinitiv. 'Refinitiv' and the Refinitiv logo are registered trademarks of Refinitiv and its affiliated companies. SEPTEMBER 17, 2025 / 4:15PM, AVAV.OQ - AeroVironment Inc at RBC Capital Markets Global Industrials Conference

Question: Ken Herbert - RBC Capital Markets Inc - Analyst : Yeah, You know one of the knocks, and to (inaudible) your point, I've covered the stock for a long time. One of the knocks on the stock coming out of the Gulf Wars and out of the great financial crisis was you lived off recurring revenues associated with an older portfolio of Pumas and Ravens, and you were maybe a little late to invest in the Switchblade or some of the newer technologies, right? That obviously have really taken off. How do you sort of manage that complacency with an installed base and a service revenue and a revenue stream around that with obviously really pushing the new opportunities because it's very easy to get addicted to the legacy products and the revenues associated with that, and the services associated with that against obviously where the puck might be in two, three, four, five years from now.

Question: Ken Herbert - RBC Capital Markets Inc - Analyst : So I would agree. I don't think you see any risk that the robotics and automation and what we're seeing in terms of adoption of these technologies in -- within the Pentagon and in a National Security setting, that train has left the station. That -- that's -- there's no rolling back the clock on that, and the technology is such that it'll continue to evolve pretty quickly. As you think about that moving forward, what are three or five areas within the technology that make this work where you're really investing now where you think AVAV will truly be differentiated within this broader sort of autonomy robotics universe.

Question: Ken Herbert - RBC Capital Markets Inc - Analyst : So you've recently completed the largest acquisition in the company's history, BlueHalo, maybe you can talk a little bit about the strategic rationale behind that. And I guess more importantly, a bigger picture sort of what you see within consolidation in the defense industry, is the areas you talk about are very exciting and there's some scarcity to it. How do we think about consolidation? Or how should we think about consolidation over the next few years?

Question: Ken Herbert - RBC Capital Markets Inc - Analyst : Yeah. So let me ask you, one of the aspects I think that's most exciting about BlueHalo is the counter unmanned or counter unmanned aerial systems marketplace. We tend to think of that today predominantly as something in a war zone or war fighting atmosphere, but I can see a scenario in in several years where it becomes much more ubiquitous in our daily life around infrastructure and airports and other things. How do you see this playing out? How do you see the opportunities set for AVAV, but also just sort of more generally, how we should think about this as we think about impacting our daily lives perhaps over the next several years.

Question: Ken Herbert - RBC Capital Markets Inc - Analyst : So I'd be interested, maybe Kevin again from your perspective, you didn't come from the defense prime or the industry as well, so you bring a completely different perspective into the CFO role. As you think about sort of balancing again this long term opportunity with sort of near term expectations, how do you feel the company's position from a financial standpoint now to really take advantage of these opportunities?

Question: Ken Herbert - RBC Capital Markets Inc - Analyst : In terms of growth opportunities?

Question: Ken Herbert - RBC Capital Markets Inc - Analyst : Yeah. Secretary Hegseth likes to show off his drones or likes to show off different aspects of the drones. How much time do you spend in the Pentagon, and what are your relationships like there, and is there more you need to be doing there? REFINITIV STREETEVENTS | www.refinitiv.com | Contact Us consent of Refinitiv. 'Refinitiv' and the Refinitiv logo are registered trademarks of Refinitiv and its affiliated companies. SEPTEMBER 17, 2025 / 4:15PM, AVAV.OQ - AeroVironment Inc at RBC Capital Markets Global Industrials Conference

Question: Ken Herbert - RBC Capital Markets Inc - Analyst : Maybe just take a step back, you obviously with your legacy products had quite a lot of success internationally. What's your view on international markets? And I know we've talked a lot about sort of an install base internationally is very important. What are you seeing there in terms either support from the government to sell more internationally, it sounds like regulations around international sales have opened up? And how much of a focus is that for you now just relative to what you're seeing here obviously in the United States?

Question: Ken Herbert - RBC Capital Markets Inc - Analyst : So let me just maybe to bring it home, how do we think about this business in five years? If we're sitting up here in five years, how does AVAV look and what's different, and what's your aspiration as you think about this business, either from a financial metric standpoint, size metrics, just how do you -- what's your five year plan look like for the business from an aspirational standpoint.

Question: Ken Herbert - RBC Capital Markets Inc - Analyst : Well, we really appreciate the time. Kevin, Wahid, it's great to have you with us here. Appreciate everybody sticking around, lunch. Hope, obviously, really appreciate the support for RBC, and hope everybody has a great conference, and thank you very much for the words.