Good afternoon, ladies and gentlemen. Welcome to AeroVironment's first quarter fiscal year 2020 earnings call. This is Steven Gitlin, vice president of investor relations for AeroVironment. 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 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 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 earnings release and the 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 and Presentation section. The content of this conference call contains time-sensitive information that is accurate only as of today, September 4th, 2019.
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, Mrs. Teresa Covington. We will now begin with remarks from Wahid Nawabi. Wahid?
Thank you, Steve, and welcome to our first quarter fiscal year 2020 earnings conference call. Today, I will refer to the supplemental charts we filed with our earnings release and posted to our website to highlight important messages. On today's call, I will emphasize three key messages that appear on slide number three of our supplemental charts. First, our team delivered outstanding first-quarter results. Second, we're successfully executing our plan and remain on track to achieve our fiscal year 2020 objectives. Third, we continue to make great progress on our strategic growth initiatives. I will start by summarizing our outstanding first-quarter fiscal year 2020 performance and discuss our key achievements during the quarter. Next, Teresa will provide a more detailed summary of financial performance in the quarter, and I will discuss our goals for fiscal year 2020 before Teresa, Steve, and I take your questions.
For our first-quarter fiscal year 2020 financial highlights. Once again, outstanding financial results reflect our team's focused execution and the sustained market demand for our solutions. Key highlights of our strong first-quarter results summarized on page number four of our supplemental charts include the following: Revenue of $86.9 million increased 11% over last year. Gross profit of $41.3 million increased 27% over last year. Earnings per diluted share of $0.71 decreased $0.14 from first-quarter fiscal year 2019 diluted EPS of $0.85. Non-GAAP earnings per diluted share of $0.74 increased $0.15 over first-quarter fiscal year 2019 Non-GAAP diluted EPS of $0.59. Funded backlog of $165 million increased 5% over last year. We are continuing a multi-quarter trend of maintaining a high level of funded backlog as compared to our historical averages.
Favorable revenue mix and higher volume contributed to strong quarter profit, as illustrated on slide number six, with a higher proportion of product versus service revenue. Our strong funded backlog supports a high level of visibility, which Teresa will detail shortly. In addition to strong financial results, our team made great progress across our business, as highlighted on slide number five. We remain the global leader in small UAS for the defense market and for fixed-wing solutions in particular. In the first quarter, we received a $45 million contract award from the U.S. Army for Raven systems that was included in government fiscal year 2019 appropriations. This award supports the U.S. Army's Security Force Assistance Brigades, referred to as SFAB. These specialized U.S. Army units conduct training, advising, assisting, enabling, and accompanying operations with allied and partner nations.
Exposing more allied and partner nations to the effectiveness of our Raven Systems helps expand awareness and promote further adoption of our solutions. The Army and its SFAB organization are engaged in a modernization program to provide soldiers with the latest and most capable tools, and the selection of our Raven system serves as further evidence of AeroVironment's leadership position in this market and our advanced capabilities. The U.S. military and more than 45 allied nations continue to view AeroVironment's family of small UAS as the premier fixed-wing solution in the category, with a track record of reliability, effectiveness, and ruggedness demonstrated around the world. We are actively pursuing a number of international procurement opportunities and look forward to providing more information when we are able to. We're excited to count our new Vapor unmanned helicopter systems as part of our family of small UAS.
Our team is on track to fulfill the more than $13 million IDIQ contract for a defense customer while also engaging with other customers to market this capability. In our tactical missile systems product line, the government recently announced the U.S. Army's intent to award a sole source Switchblade hardware production contract to AeroVironment for government fiscal years 2020 through 2022. The performance period includes one 12-month base period and two 12-month options. We anticipate receiving this contract award by our fourth fiscal quarter. In federal government fiscal year 2019 defense appropriations, $110 million in funding was specified for LMAMS, or lethal miniature aerial missile systems, and $83 million have been proposed as part of the government fiscal year 2020 budget request. On slide seven, we illustrate the primary AeroVironment components of U.S. government fiscal year 2019 procurement appropriations and which of those have already converted to orders.
Past awards have demonstrated that government fiscal year appropriations can be spent in subsequent fiscal years. We are preparing our production line based on communication with our customer and anticipated contract timing. In our HAPS program, summarized on slide number eight, we continue to make great progress toward the goal of helping to bridge the world's digital divide by manufacturing, supplying, and supporting solar HAPS UAS for HAPSMobile Inc. In August, HAPSMobile announced it received FAA authorization for flight testing in Lanai, Hawaii, paving the way for the initiation of our high-altitude flight test program. Before operating in Lanai, we are conducting ground and flight testing in California. We look forward to providing you more updates as we continue to make progress in this exciting and large growth opportunity. Now, Teresa will provide a detailed financial overview of our first quarter. Teresa?
Thank you, Wahid. Good afternoon, everyone. We had a strong financial performance in the first quarter of fiscal 2020. Revenue from continuing operations for the first quarter of fiscal 2020 was $86.9 million, an increase of $8.9 million, or 11%, from the first quarter of fiscal 2019 revenue of $78 million. The increase was due to an increase in product deliveries of $10.5 million, partially offset by a decrease in service revenue of $1.7 million. First quarter fiscal 2020 revenue by major product line/program is as follows. Small UAS was $66.7 million, or 77%. HAPS was $12.3 million, or 14%. TMS was $5.6 million, or 6%, and other was $2.2 million, or 3%. The inception to date revenue for HAPSMobile is $89.8 million.
The total value of all contracts with HAPSMobile is $134.4 million, which consists of $125.7 million for the design development agreement and $8.7 million for preliminary design and other related efforts. There is $44.5 million remaining on these contracts, which includes a portion that is currently unfunded. Gross margin from continuing operations for the first quarter of fiscal 2020 was $41.3 million, or 47% of revenue, compared to $32.6 million or 42% of revenue for the first quarter of fiscal 2019. The increase in gross margin was primarily due to an increase in product margin of $9.9 million, partially offset by a decrease in service margin of $1.2 million. Gross margin as a percentage of revenue increased to 47% from 42%, primarily due to a favorable product mix and an increase in the proportion of product revenue to total revenue.
Product sales were 76% of total sales in the first quarter of fiscal 2020, compared to 71% for the first quarter of fiscal 2019. Looking at the rest of the income statement, SG&A expense from continuing operations for the first quarter of fiscal 2020 was $13.7 million, or 16% of revenue, compared to SG&A expense of $12 million, or 15% of revenue for the first quarter of fiscal 2019. R&D expense from continuing operations for the first quarter of fiscal 2020 was $8.7 million, or 10% of revenue, compared to R&D expense of $6.4 million, or 8% of revenue for the first quarter of fiscal 2019. Income from continuing operations for the first quarter of fiscal 2020 was $18.9 million, compared to $14.2 million for the first quarter of fiscal 2019.
The increase in income from operations was primarily due to an increase in gross margin of $8.7 million, partially offset by an increase in R&D expense of $2.3 million and an increase in SG&A expense of $1.7 million. Net other income for the first quarter of fiscal 2020 was $1.7 million, compared to net other income of $9.3 million for the first quarter of fiscal 2019. The decrease in net other income was primarily due to a one-time gain from a litigation settlement during the first quarter of fiscal 2019. The effective income tax rate from continuing operations was 10.4% for the first quarter of fiscal 2020, compared to an effective income tax rate of 10.9% for the first quarter of fiscal 2019.
Equity method investment activity net of tax for the first quarter of fiscal 2020 was a loss of $1.3 million, or $0.06 per diluted share, compared to a loss of $0.6 million net of tax for the first quarter of fiscal 2019. Net income from continuing operations attributable to AeroVironment for the first quarter of fiscal 2020 was $17.1 million, or $0.71 per diluted share, compared to the net income from continuing operations attributable to AeroVironment of $20.3 million, or $0.85 per diluted share for the first quarter of fiscal 2019. Non-GAAP diluted earnings per share for the first quarter of fiscal 2020 was $0.74 per diluted share, and excludes $0.03 per diluted share for the deal, integration costs, and intangible amortization expense associated with our recent acquisition of Pulse Aerospace.
Non-GAAP diluted earnings per share for the first quarter of fiscal 2019 was $0.59 per diluted share, and excludes the $0.26 per diluted share gain from a one-time litigation settlement. Our funded backlog as of July 27, 2019, was $165.2 million, an increase of $8.2 million from the first quarter of fiscal 2019, and an increase of $0.9 million from the fourth quarter of fiscal 2019 backlog of $164.3 million. Turning to our balance sheet, cash equivalents, restricted cash, and investments at the end of the first quarter of fiscal 2020 totaled $310.6 million, a decrease of $22 million from the end of fiscal 2019 cash equivalents, restricted cash, and investments of $332.6 million. The decrease in cash was primarily related to the Pulse Aerospace acquisition, as well as the increased investment in the HAPSMobile joint venture.
Net accounts receivable, including unbilled receivables and retention at the end of the first quarter of fiscal 2020 totaled $90.7 million. The unbilled receivables and retentions balance was $47.9 million, inclusive of $12.6 million of related party amounts. Total days sales outstanding from continuing operations for the first quarter of fiscal year 2020 was approximately 90 days, compared to 87 days for the fourth quarter of fiscal year 2019. Net inventory at the end of the first quarter fiscal year 2020 was $56.3 million, compared to $54.1 million at the end of the fourth quarter fiscal year 2019. Days in inventory outstanding for the first quarter fiscal year 2020 was approximately 109 days, compared to 92 days for the fourth quarter fiscal year 2019.
Accounts payable at the end of the first quarter fiscal year 2020 was $11.4 million, compared to $16 million at the end of the fourth quarter fiscal year 2019. Total days payable outstanding for the first quarter fiscal year 2020 was approximately 27 days, compared to 24 days for the fourth quarter fiscal year 2019. Turning to capital expenditures in the first quarter of fiscal year 2020, we invested approximately $1.9 million in property improvements and capital equipment for continuing operations and recognized $2.1 million of depreciation and amortization expense. Now an update to our fiscal 2020 visibility, as highlighted on page nine of the supplemental charts. As of today, we have year-to-date revenue in fiscal 2020 of $87 million. First quarter ending backlog that we anticipate to execute in fiscal 2020 of $150 million. Q2 quarter-to-date bookings that we anticipate to execute in fiscal 2020 of $18 million.
Unfunded backlog from incrementally funded contracts that we anticipate to recognize revenue during the balance of the year of $15 million. This adds up to $270 million, or 75% of our fiscal year 2020 midpoint revenue guidance range. We anticipate a full year effective tax rate of approximately 11%. This is higher than the fiscal 2019 full year tax rate of 9%, primarily due to anticipated lower excess tax benefits from equity awards and other tax credit estimates. Now I'd like to turn things back to Wahid.
Thanks, Teresa. Our first quarter results represent a very strong start to fiscal year 2020. We are executing to our plan and are on track to achieving our fiscal year 2020 objectives and delivering a third consecutive year of profitable double-digit top-line growth. With 75% full-year visibility to the midpoint of our revenue guidance range, we reiterate our guidance of $350 million-$370 million in revenue, $1.35-$1.55 in diluted EPS, and $1.47-$1.67 in non-GAAP diluted EPS. We anticipate first-half revenue to represent about 45% of full-year revenue. We expect lower gross margin in the second half of fiscal year 2020, as a shift in revenue mix is likely to compress margins. We also plan higher investments in the second half. Two consecutive years of double-digit profitable top-line growth demonstrate the effectiveness of our past strategic investments.
We expect full-year internal R&D spending to be around 11% of revenue. We have summarized our full fiscal year 2020 financial expectations on slide number 10 of our supplemental charts. Once again, the three key takeaways from our first fiscal quarter are, first, our team delivered outstanding first-quarter results. Second, we are successfully executing our plan and remain on track to achieve our fiscal year 2020 objectives. Third, we continue to make great progress on strategic growth initiatives. I would like to take this opportunity to thank our employees for their focus and dedication, our customers for placing their trust in us, and you, our stockholders, for your confidence in our team and our plans. We remain dedicated to helping you proceed with certainty. Teresa, Steven, and I will now take your questions.
Thank you, Wahid. We will now begin the question-and-answer session. If you have a question, please press star and then the number one on your touch-tone phone. If you wish to be removed from the queue, you may press the pound or the hash key. If you're using a speakerphone, you may need to pick up your handset first before pressing the numbers. We respectfully ask that you limit your questions to two, and please re-enter the queue to ask any further questions. Once again, to ask a question, please press star and then one on your touch-tone phone. Our first question comes from Pete Skibitski at Alembic Global. Pete?
Yeah, good afternoon, guys. Nice quarter.
Thank you, Pete.
I was wondering if we could put maybe a finer point on the strong gross margins on the product revenue. Just, it sounds like UAS sales were very strong in the first quarter. Was it largely international, small UAS revenue that drove the gross margin strength and just from the revenue that Teresa talked about, it sounds like that'll tail off the balance of the year and that's why gross margins won't be as high the balance of the year? Am I characterizing that correctly?
Pete, as we look at our gross margin, the key drivers that I've talked about before, really three key drivers. One is the revenue volume. We had strong revenue volume in the first quarter. The second one is product versus services mix. As I've talked about before, our product gross margins are generally higher than our services margin. Very high product percentage at 76% for the quarter. The third piece is the mix difference. We do have mix differences of our products. A combination in the first quarter, all of those were favorable. The revenue volume, the product as a percentage of the sales, and the mix of products that we had. Your other question where you talked about, we did have very strong small UAS sales in the first quarter at 66.7. That was strong in both domestic and international.
We did have growth internationally in small UAS, and also domestic. Most of the growth was in the domestic side.
Okay, interesting. Okay. Let me ask one more top-level question, maybe for Wahid. Wahid, can you guys talk about your view of DoD autonomy efforts and kind of how you see that? There's a big push towards autonomy in DoD these days it seems like, and a lot of it is kind of wrapped up in UAVs. I'm just wondering how you guys are approaching that. A lot of DARPA money, a lot of research lab money is going towards it, and I'm wondering if you guys feel like you have to spend a lot on IR&D to kind of stay in touch with that trend or not, or maybe look at M&A to complement what you already have. I'm just wondering what your thoughts are with regard to kind of where things are headed.
Sure, Steve. Pete, I'm sorry. Absolutely, we're right in the middle of all of that. If you recall from previous earnings calls and discussions that I've had in different investor conferences, our systems already today include a very heavy dose of some level of autonomy and automatic flight and planning and mission execution to begin with. Number 2, if you recall from our last earnings call, we have expanded our footprint geographically with an innovation center in our New England facility near Boston area, as well as one in Midwest. One of the primary reasons for that was to continue to expand and grow our team of talented scientists and engineers in the field of autonomy, automatic flight missions, and also software analytics. It is one of the four future-defining technologies as part of our capabilities and our roadmap.
We believe that in the long run, this will continue to be a very strong driver of differentiation between our systems and other systems that are in the market today and will be in the future. Lastly, I would say that we have been investing in this area for a number of years. We continue to invest at a very healthy dose. We're also very open to non-organic complements or supplementation of capability in this space if we can find them, where it makes sense for the right price and timing. Your observation is very accurate. We're on track with that. We're very pleased with our results and our performance so far.
Okay, appreciate the color, guys.
Thank you, Pete.
Thanks, Pete. Our next question comes from Ken Herbert at Canaccord Genuity.
Hi, good afternoon, every-
Ken, are you there? We seem to have lost the connection with Ken, so why don't we move on to Joseph DeNardi at Stifel, and Ken can come back into the queue. We'll be happy to answer his questions. Joe?
Yeah. Thanks, Steve, and thanks for the slides this evening. They were helpful.
You're welcome, Joe.
Wahid, you mentioned the better visibility into TMS. It sounds like given the three-year award you're expecting. Can you talk about what that visibility provides you with, maybe the size of the award you're expecting? Does that visibility suggest growth from that program for you, just kind of the LMAMS or Switchblade specifically, not the variants that you have within TMS?
Sure, Joe. As I mentioned in my remarks, the U.S. government has publicly announced that they are going to engage in a roughly it's a 3-year timeline contract. First year sole source, and then 2 additional years of options of sole source. It's primarily for the LMAMS requirements, which essentially are Switchblade, the original Switchblade has been and continues to be the de facto standard solution offering for the U.S. military. We're actively involved with that customer. This is consistent with what I've said to all of you before in the several quarters in the past, that we're working with our customer, and it's also very consistent with the government appropriations budgets that are reflected in the government fiscal year 2019 budgets of over $110 million for this capability, as well as on the proposed budget for fiscal 2020 of approximately $80+ million.
We expect this to be essentially a contract that covers that umbrella of requirements. Obviously, we will not stop there, and we continue to work with our customers. We believe that this capability is differentiating, and we'll continue to see quite strong demand and signs from our customers in terms of their satisfaction, as well as this capability for our warfighters. With that, I'm confident in our ability to continue delivering results, and that supports our current fiscal year expectations and our long-term value creation objectives that we set for ourselves.
Okay. Just on TMS revenues in the quarter, the $5.6 million, that's pretty light relative to where that's been last year or recently. Can you just maybe speak to that? Also just kind of the breakdown maybe between the TMS in terms of how much is Switchblade or LMAMS related versus some of the variants, customer-funded R&D, just so we can get a sense for kind of the magnitude of the opportunity there, because I think you guys are pretty excited about some of the larger variants you're developing. Thank you.
Sure, Joe. The TMS revenue, as you know, it's quite lumpy in size based on timing. If you look at it any specific interval of a quarter, it usually does not tell the whole story or a good picture of the entire revenue or that story of that business and that product line. From time to time, based on the timing of the contract award and execution of our programs, we will see up or down numbers in that regard. However, if you look at it historically, we have demonstrated to grow that business, and we're preparing our production right now to get ready for the very large contract award potential that we're working with our customer that could be in the tune of $3+ million, or $3 million that I mentioned just earlier.
In regards to the mix of that revenue, we don't really break down our revenue by product specifically on product line basis. At any given time, we have a mix of both product revenue that we deliver from our original Switchblade, as well as services revenue for sustainment, as well as development of new and next-generation variants. One of those variants, which I spoke about last quarter, we're very excited about, and so are our customers. We're engaged with our customers. We're well into the development of that effort, and we will continue to make progress on that, and we'll update you as we have more information available in the upcoming quarters. That's the nature of the color of our TMS business and the Switchblade revenue for this quarter versus the entire year.
We'll go back to Ken Herbert. Ken, hopefully, you're on a connection that will sustain through the conversation. Please, we invite you to ask your question.
Yeah. Hi, can you hear me?
Yes, we can.
Great. Thanks, Steve, Teresa, and Wahid. I just wanted to ask a couple of questions on the HAPS program. First, Wahid, with the recent approval or certification for the testing to begin and what you talked about in Hawaii, can you provide any more detail on timing that we should expect across the fiscal year around the flight test program, and what are some of the next important milestones you're focused on there?
Sure, Ken. In terms of the HAPS, we're very excited about this growth opportunity in general, as you know. We're making very expeditious or an expedient progress in this product line and in this program. In terms of our ability to develop and demonstrate this capability in the market in about a two-year timeframe, number one. Number two, we've had a couple of announcements, as you noticed, and it's in our materials that we've published this quarter in our earnings release. We have received the approval from flight operations and testing in Lanai, Hawaii. Obviously before we do that in Lanai, Hawaii, we've already started ground testing here in our California facility, and we continue to conduct those testings and flight testings as we progress.
Unfortunately, we're not in a position to be able to disclose any of the specific details yet, but this is the first phase of a multi-phase building of a very large business for AeroVironment long term. We're in the phase of design, development, and demonstration, and then followed by testing and certification, and then followed by the business launch, which we will actually fly airplanes that's certified in the airspace. We're well into the final stages of what I call design, development, and testing. Once we have more significant news, we will update you on that. Our progress to date is very promising, and our progress and our partner are looking forward to this great opportunity long term.
Okay. Of the $46 million or $45 million, $44.5 million that's left to be recognized as part of what's been, I guess, set aside, both funded and unfunded, do you expect to see all of that in fiscal 2020? How much of that is actually yet to be funded? I think Teresa mentioned there was a part of it that was still unfunded.
Yes. Let me take part of your question, and I will let Teresa answer the other part to you as well. In terms of the program, our contract with our partner in HAPSMobile Inc. really has a lot of flexibility in our ability to be able to execute on the outcomes of this program. We've intentionally structured that contract such that as we progress through this development phase of a very difficult and complex project, that we can make adjustments with our partner. As you've seen, the total value of that contract inception to date has significantly increased since the inception, number one, or the original contract value. Number two, we've continued to deliver quite a significant amount of revenue in the last several quarters from it. This year, again, still this is the development and design and development and testing. It's not really a production contract yet.
The airplane is not ready for production yet. We don't expect significant increases in that regard in terms of the short-term revenue profile. We expect HAPSMobile to continue to work with us to execute this program successfully as we progress. In terms of what % of that is unfunded, I'll ask Teresa to weigh in on that one, please.
Yeah. Ken, as I talked about in my prepared remarks, the revenue for HAPS in Q1 was $12.3 million, and we currently have $44.5 remaining on the contract, a portion of which is unfunded. We don't break out our backlog and our funded and unfunded by contract. As noted, our total funded backlog was $165 million at the end of Q1. In our visibility, we talked that we expected $150 million of that, anticipate that in revenue in fiscal 2020. In our unfunded, in our visibility, we expect $15 million of our unfunded to anticipate that in revenue in fiscal 2020.
Now we invite Peter Arment from Baird to ask the next question. Peter?
Yeah, thanks, Steve. Good afternoon, Wahid, Teresa.
Good day.
Hey, thanks for the charts also. Just circling back to Joe's question on TMS. Wahid, you mentioned now that you've got potential a lot of visibility here for this award. What sort of CapEx or investment spending is required here for you to stand up to support that volume?
Sure. Peter, what we shared with you today and the government has publicly announced or disclosed is very consistent with what we have said in the past several quarters, that we're looking forward and we're engaged with our customers on this front. We believe that our TMS product line has a very compelling value proposition to our customers' unique problems. We are really looking forward to executing that, and we expect that to sometimes transition into a contract in our fourth fiscal quarter of this year. In terms of CapEx expenditures, I'll let Teresa comment on it, but I don't think we're expecting anything substantially different in that regard. Teresa will comment on specifics.
Yeah. Peter, as I commented in the first quarter, we spent about $1.9 million on capital. At least in fiscal 2020, specifically for TMS, there's not an expectation of an unusually large amount of capital in 2020 related to what we talked about closing on that contract in the fiscal fourth quarter.
Yeah. That's primarily, Peter, because this is the original Switchblade, not the other variants that this particular requirement and customer acquisition is all about, which we have invested in the past and now obviously delivering based on those contracts.
That's very helpful. Just as a follow-up, you mentioned the product revenue mix was 76% this quarter, and the second half of this fiscal year, you're expecting a much different change in that mix. Are we going to go back to kind of that lower 60% total that you've seen in previous quarters? Just trying to get a better understanding for what the gross margins are going to look like in the second half. Thanks.
Sure. Peter, in terms of our visibility for the rest of the year, as I mentioned in my remarks, we expect the revenue in the first half to be about 45% of total full-year revenue, number one. Number two, we do expect the gross margins to compress in the second half of the next three quarters, primarily because of the change in mix. As we change both from a product mix perspective as well as on services versus product mix as well. Teresa, you have any specific?
Yes. We haven't talked about in the guidance like what percentage. In fiscal 2019, our product revenue for the year was 67% of the total. In the first quarter, we were at 76%. We obviously expect that percentage to go down in future quarters, but we haven't specifically said what we expect for the full year.
Yeah.
Our next question comes from Louie DiPalma at William Blair. Louie?
Good afternoon, Wahid, Teresa, and Steve.
Hello, Louie. How are you?
Great. As a follow-up on the various Army Switchblade questions, do you expect that the total ceiling amount of the 3-year contract, assuming the exercise of the two latter options, will include the full amount of the fiscal 2019 and the fiscal 2020 budget, or are you just assuming the fiscal 2019 budget?
Louie, we are working with our customer to put in place a contract vehicle that allows us to provide this capability to our customers for the customer's intended three years. Overall, it would seem to me, based on our engagements with our customer, that the government's intent is consistent with that approach. What it ends up being, really, no one can really tell until it's complete. However, our belief is that since our customer expects us to continue to deliver this capability and there's budget already in government fiscal year 2019, and there's proposed funding for government fiscal year 2020, we believe that the customer's interested in putting a contract vehicle in place that allows them to procure products on a sole source basis for a three-year full contract term. We'll keep you updated as that goes forward in the future.
In the meantime, we're very confident in the capability of this solution set and our ability to be able to execute our plan as we reiterated our guidance for this year.
Okay. Related to this, Congress is working on a two-year budget. Do you have any sense what the fiscal 2021 budget would apply for the LMAMS, and would that be possible for the fiscal 2021 to be also incorporated in this three-year contract framework?
We are not in a position to be able to disclose anything that our customers have not disclosed yet, Louie, on that front, specifically related to fiscal year 2021. That is a likely situation that if there's a big if, there's a 2-year government DoD budget approval, that then our customer's expectation or plans for having a 3-year contract in place could potentially, theoretically, cover the government for 3 years. There's no real indicators to be able to say anything more than what I just described right now in terms of a true likely outcome.
Our next question will come from Joe DeNardi, returning to the queue. Joe?
Yeah, thanks. Wahid, I think AeroVironment historically has been reluctant to provide longer-term financial targets because there was limited visibility. When you think about the visibility you have into TMS now and HAPS, it seems like you have better visibility now than you have historically. Can you talk about when you think you might be in a position to provide some longer-term targets? As you make this transition on HAPS, do you think you can still grow revenue? Because it seems like that and Switchblade may be working against you a little bit, just given what the budgets for LMAMS look like.
Sure, Joe. As I've stated in the remarks, we have already demonstrated in the last two consecutive years that we can grow our business, and we have grown our business top-line double-digit profitably in two consecutive years. With our current guidance at the midpoint of our revenue guidance range, this would mark essentially the third consecutive year of double-digit top-line growth. That's actually with our current portfolio of businesses and HAPS still being a design and development phase program, number one. Number two, I'm very pleased with the results that our team delivered this quarter and how it sets us up for the remainder of this fiscal year. As you know, we don't provide guidance beyond this fiscal year, and we will do so for the next year on our fourth quarter earnings call.
Lastly, I would say that we're executing our strategy. Our strategy is yielding great and outstanding results. We have very high backlog in terms of visibility, as Teresa outlined earlier. We've got a very strong start for our first quarter. In terms of revenue as well as profitability, we're growing our business in very exciting categories that we play in. At the same time, our strategy lends itself to a very long-term value creation strategy for shareholders. We're focused not only on the short-term, but also on a very long-term basis. Many of our investments that we've made over the last several years is already paying off now, and it will continue to pay off in the long run, handsomely.
We'll keep you updated and provide you as much visibility as we can possibly provide you based on the information that we have in our hands.
Yes. That's fair, Wahid. Just given your expectation that you get the $110 million in funding over this three-year order sometime in your fiscal fourth quarter, is it fair to say that there's not much in your revenue this year associated with the $110 million in funding, that should really start to benefit you guys in your FY 2021?
Well, yes and no. Some of it probably will end up in our fiscal year, and some of it will not end up in our fiscal year, primarily because of the new ASC 606 accounting standard as to how revenue is recognized based on time-and-point revenue versus in-time revenue definitions.
Over time.
Over time, I'm sorry, revenue definitions. Some of it could fall and may fall into this year, and we'll keep you updated on that as we progress throughout the year. The key message there is that our customer is working with us, and we're working with our customer to secure a multi-year contract for the procurement of this capability, and there's dollars in government fiscal year 2019 budget, over $110 million, and an additional $80-plus million in the proposed fiscal 2020 budget. Those dollars are already known, and they represent about $180-plus million worth of demands for our original Switchblade alone for this foreseeable future.
If you have a question, as a reminder, please press star and then one on your touch-tone phone. We'll take a question now again from Ken Herbert of Canaccord. Ken?
Yeah, hi. Just a follow-up. It seems like you've had good success, Wahid, in smoothing out the top line and the revenues across the quarters. I'm just wondering if you can talk about your ability or efforts to do the same thing with cash flow, because historically, you've generated a significant amount of your cash in the fourth quarter or the second half of the fiscal year. It seems like you, again, this quarter, had a fair amount of working capital build. Can you just talk about the cadence of cash flow through the quarter and any steps you're doing to maybe better flow that across the fiscal year?
Sure, Ken. Again, we're very pleased with the outstanding results that our team delivered this quarter in setting us up for the remainder of our year. We also believe that we're very confident in our ability to continue to delivering the results that we expect out of ourselves, both short-term and long-term. To your point, we have made a very strong effort over the last two years to try to smoothen out the revenue, as you've seen the results last fiscal year. You have heard me this fiscal year also, we expect the results to be about fairly evenly distributed throughout the quarters. In terms of cash flow, the challenge there is based on the nature of our business.
Our business is really lumpy in size of contracts, and the type of contracts makes the time of recognizing the revenue and the cash that flows through the financial statements versus when we actually invest in building it and when we actually receive the dollars and when we collect the invoices. We absolutely have efforts to make that smoother as much as we can. At the same time, we put a high priority on our customers' needs, and we try our best to make sure that first we satisfy our customers' needs, and then we also manage the business effectively at the same time. Teresa, anything you'd like to add?
Ken, as I noted in my remarks, also in the first quarter, a portion of our cash we used for the acquisition of Pulse Aerospace, as well as some additional investment in the HAPSMobile joint venture.
Those two affected the cash flow in the first quarter.
Okay. Thank you.
You're welcome.
Do you have a follow-up, Ken?
Nope, that was it. Thank you.
Okay, thank you very much. As that was our last question, we thank you all for your attention 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, avinc.com. We look forward to speaking with you again following next quarter's results, and we wish you a good afternoon.