Good afternoon, and welcome to AeroVironment's investor conference call to discuss today's announcement regarding the company's acquisition of Arcturus UAV, Inc. This is Steven Gitlin, chief marketing officer and vice president of investor relations for AeroVironment. 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. At this time, all participants are in a listen-only mode. We will conduct a question -and -answer session after management's remarks. As a reminder, this conference call is being recorded for replay purposes. 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, our ability to successfully consummate the transactions contemplated by the agreements to purchase Arcturus UAV, Inc and Telerob on a timely basis, the ability to timely and sufficiently integrate acquired operations into our ongoing business and compliance programs, including the expansion of international aspects, and 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 Form 10-Q filed with the SEC, and the Form 8-K filed today with the SEC, along with the associated announcement release and the safe harbor statement contained therein. The content of this conference call contains time-sensitive information that is accurate only as of today, January 13, 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. I will now turn the call over to Wahid Nawabi. Wahid?
Thanks, Steve. Good afternoon, thank you for joining us on such short notice today. I know that you're all very busy, and we appreciate your time to discuss AeroVironment's agreement to acquire Arcturus UAV for a total of $405 million through a combination of cash and stock. On today's call, I will reinforce the following three key messages. First, this transaction is about top and bottom-line growth, expanding our reach to larger segments of the unmanned aircraft industry. Second, Arcturus UAV solutions represent a natural fit into our growing portfolio of intelligent, multi-domain robotic systems. Third, this transaction will be immediately accretive to adjusted EBITDA and non-GAAP diluted earnings per share, excluding intangible assets, amortization expense, and deal and integration costs and to GAAP diluted EPS in fiscal year 2022, while increasing pro forma net leverage to 0.5x adjusted EBITDA.
AeroVironment has a demonstrated track record of growth and success in the UAS industry as a leading supplier of Group 1 unmanned aircraft systems and tactical missile systems, and as a leader in the emerging category of solar-powered, high-altitude pseudo satellites. We support all U.S. Department of Defense services and foster long-standing relationships with the U.S. Special Operations Command and the U.S. Army, as well as the Marines, Air Force, Navy, and other U.S. government agencies. We have successfully and profitably grown the business over the past several years. We have also refined our strategic goal: To offer an integrated portfolio of intelligent, multi-domain robotic systems to defense and non-defense customers. Last month, we announced our agreement to acquire Telerob, a leading German developer of unmanned ground vehicles that will help us expand our multi-domain reach.
Expanding into attractive segments of the UAS industry will enable us to deliver greater value to shareholders and customers. Our acquisition of Arcturus UAV is consistent with our growth strategy and will play a key role enabling us to serve growing demand and our customers' evolving needs better. Arcturus UAV will accelerate our growth strategy and expand our unmanned aircraft systems portfolio into valuable new segments. I would like to use our time together today to describe the transaction, the rationale, the financial benefits, and why we're confident this transaction, which was unanimously approved by our board, represents a significant value creation opportunity for our shareholders. We will take your questions. Slide number three of our presentation presents a summary of the transaction in key terms.
Arcturus UAV is a strong, growing provider in the Group 3 segment of the unmanned aircraft systems industry, with top-line growth exceeding 20% for each of its last two fiscal years. The total transaction consideration consists of $355 million in cash and $50 million in AeroVironment stock. As we have said before, our strong balance sheet provides significant financial flexibility and enables us to pursue this exciting transaction. We have secured a $200 million term loan facility from Bank of America, JPMorgan Chase, and U.S. Bank, and the remainder of approximately $155 million will come from out of our cash. The purchase price of this acquisition represents about 11x Arcturus UAV's last 12 months adjusted EBITDA as of September 30th, net of anticipated tax benefits.
Through our relationship with Arcturus UAV, which dates back to well before our current discussions, we have been impressed with their team, their products, their performance, and their dedication to customer success. We intend to retain the entire Arcturus UAV team to maintain their strong momentum and ensure continuity as they become a wholly owned subsidiary of AeroVironment after closing. Turning to the benefits of the transaction on slide number three, the acquisition expands our reach into the larger Group 2 and 3 segments. We are very familiar with these segments, which according to a forecast by Renaissance Strategic Advisors, or RSA, a highly respected consulting firm in the aerospace and defense industry, could represent more than $1 billion annually in production and services contracts over a 10-year period and a compound annual growth rate of up to 10%.
We believe the Group 2 and 3 segments are significantly larger over time than the core Group 1 segment we pioneered and lead. Arcturus UAV's complementary capabilities and programs will diversify our portfolio and increase key customer penetration. Arcturus UAV has built strong relationships with key AeroVironment customers. They are a leading supplier of contractor-owned, contractor-operated, or COCO, services in support of the U.S. Special Operations Command's Mid-Endurance UAS or MEUAS III and IV programs, and they are one of four chosen suppliers to the U.S. Army's Future Tactical UAS or FTUAS program. Arcturus UAV's success in the MEUAS and FTUAS programs has positioned the company as a leader for next-generation program requirements. Together, AeroVironment and Arcturus UAV will offer a stronger portfolio of multi-domain unmanned capabilities. Additionally, adding a profitable COCO business model will diversify our revenue base and improve forecasting visibility.
Importantly, the financial benefits of this transactions are compelling. At closing, we expect the transaction to be immediately accretive to revenue, adjusted EBITDA, and non-GAAP diluted earnings per share, excluding intangible assets, amortization expense, and deal and integration costs, and accretive to GAAP-diluted EPS by our fiscal year 2022. On slide number four, we provide information on Arcturus UAV's principal products, along with highlights that describe their compelling achievements. The Arcturus UAV team has developed its innovative JUMP 20 VTOL UAS, which is designed to take off and land vertically, eliminating the need for launch and landing infrastructure and runways. This capability is aligned with the U.S. Army's roadmap and represents a primary driver for Arcturus UAV's down select for the Army FTUAS program. With FTUAS, the Army seeks to replace the Shadow, their incumbent Group 3 UAS solution.
Arcturus UAV has generated more than 110,000 successful flight hours on the JUMP 20 and T-20 systems, an impressive track record of battlefield success. Furthermore, Arcturus UAV systems are capable of deploying numerous different types of payloads, enabling them to deliver multi-mission capabilities based on customer requirements. The majority of Arcturus UAV's revenue is from COCO services, in which Arcturus UAV personnel operate and support the systems for the customer, generating $84 million of revenue over the 12 months ending September 30th, 2020, and $35 million of adjusted EBITDA. Turning to slide number six, the chart depicts the defense UAS industry segments and their incumbent suppliers by notional altitude of operation, endurance, cost, payload capacity, and logistics footprint. AeroVironment's Raven, Puma, and Wasp systems represent the majority of the DoD's Group 1 fleet, which are all man-portable, hand-launched, and operated by one or two people.
Our Puma LE begins to cross the boundary into Group 2 capabilities, but with a smaller Group 1 footprint. Acquiring Arcturus UAV would expand our business into the more than $1 billion Group 2 and 3 segments. By acquiring Arcturus UAV's Group 2 and 3 UAS solutions, AeroVironment will be in a position to offer an unmatched portfolio of Group 1 through Group 3 UAS, tactical missile systems, unmanned ground vehicles, and solar HAPS, creating significant value for all of our stakeholders and positioning us as a one-stop shop for UAS and loitering missile systems mission solutions. The RSA data on slide number seven forecast an annual contract value of more than $1 billion annually for Group 2 and 3 procurement and COCO services contracts from government fiscal year 2020- 2030. This is a large and growing opportunity for value creation that will accelerate our growth.
Beyond the U.S. SOCOM MEUAS and U.S. Army FTUAS programs, multiple international allied customers represent potential adopters of the Arcturus UAV solutions. We believe this transaction will deliver value and benefit to our shareholders, our customers, and our employees, as shown on slide number eight. Our shareholders will benefit from the accretive nature of this transaction, the expanded growing segments we will serve, increased diversity in our revenue, product, and program mix, and the strategic deployment of our capital for long-term value creation. Our customers will benefit from our one-stop shop for Group 1 through 3 UAS and loitering missile systems needs while leveraging the best technology across both organizations. For our employees, we will continue to invest in human capital to support our teams. AeroVironment shares a culture of innovation, teamwork, and supporting the war fighter.
As a larger, more diverse company, we believe there will be many opportunities for growth and career development for both of our teams. Now, turning to slide number nine, both companies have created strong technology portfolios, which represent fertile opportunities for the development of new capabilities. By combining AeroVironment's global footprint and strong brand, we are confident we can successfully market Arcturus UAV's JUMP 20, T-20, and other solutions to our 50 international allied customers. The multi-mission payload capabilities of these systems enable us to expand the number of missions we can support for our customers around the world. On slide number 10, as I noted, our unmanned portfolio will expand to include group 2 and 3 solutions to complement our Group 1 UAS, our tactical missile systems, our rotary UAS, our unmanned ground vehicles, and our solar HAPS capabilities.
This slide depicts the breadth of our portfolio with the Arcturus UAV solutions, a portfolio that has grown significantly over the past two years to support our customers' current and future needs and drive our growth. As I have stated, this transaction is about top and bottom-line growth. Our core business remains strong, and we plan to address the favorable impact of this acquisition on our outlook and our normal quarterly earnings schedule. We are broadening the scope of capabilities and customer offerings, and we are eager to deploy the advances we're achieving in artificial intelligence, machine vision, and autonomy across our newly expanded product line. There is significant momentum underway, and we're confident in our near and long-term opportunities to enhance shareholder value. We look forward to completing this transaction in the fourth quarter of fiscal year 2021 and realizing the many benefits it will create.
As a reminder, our key three messages today are: First, this transaction is about top and bottom-line growth, expanding our reach to larger segments of the unmanned aircraft industry. Second, Arcturus UAV solutions represent a natural fit into our growing portfolio of intelligent multi-domain robotic systems. Third, this transaction will be immediately accretive to adjusted EBITDA and non-GAAP diluted earnings per share, excluding intangible assets, amortization expense, and deal and integration costs, and to GAAP diluted EPS in fiscal year 2022, while increasing pro forma net leverage to 0.5x adjusted EBITDA. Again, thank you for joining us today. Now, I will hand the call back to Steve so we can answer your questions.
Thank you, Wahid. We'll now begin the question -and -answer session. If you have a question please press star on your keypad and then one on your touch-tone phone. If you wish to be removed from the queue after asking a question, press pound or hash key. If you are using a speaker phone, you may need to pickup your handset first before pressing a number. Once again, to ask your question, please press star and then one on your touch-tone phone. Our first question today comes from Pete Skibitski of Alembic Global. Pete? Pete, are you there?
Can you hear me now?
Yes, we can. Thank you. Hi, Pete.
Sorry. Hi, Wahid. Wahid, I think this is the largest deal in AeroVironment's history, I think by far. I'm interested in knowing how you kind of reached a comfort level that maybe the programs that Arcturus holds, its IP, and kind of how it differentiates itself, kind of how that would stick over time. I ask, I think, because sometimes as we look externally at UAVs, they kind of seem all the same to one degree or another. How did you reach that comfort level that their positioning can kind of endure over time?
Sure. Pete, let me first say that we have known the Arcturus UAV business and company and products and their performance and track record for many years prior to today's event. We've been incredibly impressed with their leadership team, their DNA, which is very similar to AeroVironment in terms of innovation, agility, customer success, and a track record of building a solid business underlying their operations and their efforts. Additionally, we are very familiar with these segments and programs and opportunities, and we've been tracking these for a very long time, as you all know, for quite a long time. This deal makes absolutely very, very good strategic as well as financial sense. It is a perfect strategic fit into our strategy and our customers' needs and desires.
It allows us to reach a much larger segment of the UAS space or market by having immediate access to their capabilities and their customers and contracts and products. It also makes very good sense financially. It's going to be accretive essentially on day one after close on multiple factors. Additionally, yes, it is a relatively larger deal relative to our past deals, but we don't look at it that way. We look at it by what makes sense for our strategy, for our customers, and our shareholders. We're very much focused on optimizing shareholder value and customer success. We felt that this was the right time. It was a fabulous opportunity.
We studied it for quite a long time, and I'm very glad that the owners and the operators, leaders of Arcturus UAV decided to join forces with us, and we've been very pleased with them so far.
Well, that's great. Just one follow-up, I guess. As I look at this MEUAS III going to MEUAS IV contracts, they look like they have a pretty high percentage of the task orders on the number three, but the ceiling value looks like it's going to grow pretty considerably on number four. Do you think they're going to grow pretty nicely just from the MEUAS program, the fact that they have a pretty high capture rate on the task orders there?
Pete, yes. We believe, as you know, we as a company are a growth business and a growth company. We've been doing that. We've delivered on that for several years. I have to say that credit to the Arcturus UAV team, they have an exceptional track record of creating success, competing successfully, and winning on MEUAS III as well as on FTUAS down select. They have built an incredibly positive and solid reputation in the industry with the customers in terms of their track record of success. As I said on the remarks, that in the past two fiscal years, they've had over 20% growth. We're very familiar with these programs, as I said earlier, and we know what the customer's needs and desires are in terms of requirements going forward.
We felt that by now joining forces, it allows us to actually scale their business even more and deliver more value to our customers as well as shareholders. We feel pretty good about their prospects, and not only just now, but also in the future. That was one of the key reasons why both of our boards, Arcturus UAV's boards as well as ours, unanimously approved this transaction and deal.
Thank you, Pete. Appreciate the questions. Now we'll turn it over to Peter Arment from Robert Baird. Peter?
Thanks, Steve. Congratulations, Wahid. Wahid, could you just clarify, you talked about the contractor-owned or contractor-operated business model. Did you disclose what the percentage of revenues were from that model approach under Arcturus?
Peter, we did say that they derive majority of their revenue from a contractor-owned, contractor-operated business model. That was another key variable or component of the attractiveness of their business to us because, A, it's a recurring business model, and B, they have grown that business because they've performed really well for the customer. As they have built their track record of success in delivering value to their customers, they have delivered more, and the customers have actually increased their business with them. That's not the only way that they do that. They also generate some revenue, which we will provide that to you later after the close. This is just an announcement, as you know, now. They do sell hardware, and we believe that there's a significant opportunity on both sides to leverage each other's business models.
As you know, AeroVironment is incredibly successful in providing and selling system solutions, hardware and software services. We can leverage their business model to provide our customers and their customers with hardware sales or with COCO services, depending on what the customers require. There's tremendous opportunity here for cross-selling, providing each other's business models and go-to-market strategies and complementary over time.
No, that's very helpful. Could you just maybe talk about are these products available for export and if they have any international contracts today and what that might look like?
Sure. Yes, the answer to that question is yes. We have studied that, and we have reviewed that very thoroughly. We're very pleased that A, they already sell to international customers. That is something that they've already achieved very successfully. They also have a pretty healthy pipeline of potential additional customers. Lastly, you know that we have a very large footprint internationally with our small UAS, Group 1 UAS. Almost all of those customers do qualify or are targets for potentially benefiting from this capability. We intend, in the long run, to introduce each other's capabilities to both of our customers and serve our customers better that way. I think that's going to be a significant driver of value to both our customers as well as theirs in the long run.
Thank you, Peter. Our next question comes from Joseph DeNardi at Stifel. Joe?
Yeah. Hey, good evening, and congrats on the deal.
Hi, Joe. Thank you.
Wahid. Yeah. Hey, Wahid. I think if I heard you correctly, you said the EBITDA contribution is about $35 million. Can you provide the revenue contribution if you didn't?
Yes. No. I said roughly, Joe, that the revenue for the last trailing 12 months ending in September was roughly $84 million, and their EBITDA was roughly $35 million, I think that we said that. Right, Kevin?
Yes, that's correct.
Great. Then Wahid, if you could just talk a little bit about why you all are a better owner of this business than they are kind of on their own. What can you do with their assets that they can't? If you could just speak to kind of the strategy behind that a little bit.
Sure, Joe. The number one strategic reason, as you know, is we believe, and it's very much validated with our customers' desires and requirements and their motivations, that long term, we can provide our customers and their customers, common customers, with a multi-domain intelligent robotic system solution that can do a lot more for our customers in the long run. That is where the ultimate outcome is going to be in the long run. Having the ability to offer a one-stop shop across our portfolio of solutions from unmanned Group 1 UAVs to Group 2 and 3, to loitering missiles and then UGVs and solar HAPS, all of that coupled with AI and machine learning and autonomy algorithms, is going to deliver tremendous value to our stakeholders, both customers, shareholders, and employees. We both essentially had the same ultimate intent and belief on where they should go.
We are very uniquely positioned now with this because there's no one on this planet that I know of that offers such a compelling solution and differentiated capability to our customers. For our customers to have systems that are interoperable, integrated, that they work together on multi-domains in a distributed fashion with AI, it is going to be an incredibly attractive and desired capability in the long run. That should be the fundamental strategic reasons. On top of that, there's hardly any overlap. This is a very complementary business to us, and it's accretive on day one financially. It makes an enormous amount of sense financially to our business as well. It was really a very good fit. We've known that for a long time, and obviously, we're glad that we were able to achieve this transaction at this time.
Thank you, Joe. Once again, to ask a question, please press star and then one on your touch-tone phone. Our next question comes from Louie DiPalma at William Blair. Louie?
Good afternoon, Wahid, Kevin, Steve.
Hi, Louie. Good afternoon.
Hi, Louie.
Hi. I was wondering, with this transaction, do you feel that the added presence of AeroVironment to Arcturus increases the probability that Arcturus will win the FTUAS competition?
Very good question, Louie. Let me just try to comment on that. We, on our own, felt that Arcturus UAV was very well-positioned for that opportunity and competition. For that reason, they've been down-selected as one of the four providers to do the initial phase with some contracts, initial smaller amount values, to progress that. We believe that by combining the two businesses and our capabilities, absolutely it will improve their odds, and the Arcturus leadership team and their team felt the same way. We have built an incredible track record, as you know, over the last several decades, and delivering to our customers and committing to our customers' success. Our reputation is very positive in that regard with our customers in the market. Arcturus UAV leadership team felt that this would be a very good positive because we could help them in that endeavor.
Vice versa, we believe that their capability is very complementary to ours, and we could solve our customers' problems actually a lot better as well. Both teams felt that this was actually going to improve our odds of competition, competing everywhere.
Great. On that topic, there were previous reports that you intended on submitting your Puma LE for that FTUAS competition. Does this change that, or is that report true?
Louie, we remain open to whatever makes sense for our customer. We believe that in all cases, whether it's FTUAS or MEUAS or other opportunities and programs, that ultimately what makes most sense is what's right for our customer. If a Puma LE or even Raven or other systems can do some of these missions better, faster, cheaper for our customers, we're absolutely going to support that. The FTUAS program, specifically though, is intended to replace the Shadow UAV, UAS, as we know, and that's a larger platform. The Arcturus UAV's platform is a more better fit for majority of the missions. There could be very much many missions where we could do that with Puma LE or other UAVs that we have.
Very good. Well, we have no further questions at this time. We'd like to thank everybody for joining us today, especially on such short notice, and for your interest in AeroVironment. An archived version of this call, all SEC filings and relevant company and industry news can be found on our website at avinc.com. We look forward to speaking with you again following our next quarter results. Have a good day.