Closing Bell - Manifest Space: Mars Helicopters with AeroVironment CEO Wahid Nawabi 9/7/23

Episode Date: September 7, 2023

AeroVironemnt blew Wall Street away with quarterly results this week as demand for drones and autonomous systems skyrockets. But above and beyond the battlefield, the company is well-positioned in its space portfolio, including designing and developing NASA’s Ingenuity helicopter as the first aircraft to make a controlled flight on the red planet in 2021. CEO Wahid Nawabi joins Morgan to discuss the quarter, autonomous space exploration, pseudo satellites, and more.

AeroVironment posted blowout quarterly results this week, as demand for its drones and autonomous systems, many of them battle-tested in Ukraine, soars. If the future of warfare is unmanned, AeroVironment is positioned to capitalize on it. But CEO and Chairman Wahid Nawabi says those capabilities extend beyond and above the battlefield. We are really, as a fundamental company, we're a technology company. Defense happens to be our largest customer and market that we serve. But we make systems that go beyond just defense in terms of its applications. Two of our product lines or capabilities have very direct implications to space.

AeroVironment helped design and develop NASA's Mars Ingenuity helicopter, which made history when it became the first aircraft ever to make a powered, controlled flight on another planet back in 2021. It just recently logged its 57th flight. That success is translating to other contracts. Fundamentally, this is the beginning of a space robotics business for us. Now that we can fly on Mars, there's lots and lots of different missions. Missions that could involve other planets or closer to home and already underway, commercial and defense activities in Earth's stratosphere, which is apparently very similar to atmospheric conditions on the red planet. On this episode, Noavi discusses autonomous space exploration, pseudo-satellites, and the growing promise of new AI applications.

I'm Morgan Brennan, and this is Manifest Space. Okay, we're going to talk space, but first you are coming off of just gangbusters, record fiscal Q1 earnings. I guess walk me through the strength and the growth of the backlog that you're seeing in the company overall. We're very excited. We have had a tremendous start to the year. We had a record quarter last quarter for the company

in terms of backlog and revenue. And we actually broke that record in terms of backlog even again this quarter. Eight of our different robots or drones and robotic systems are in use in Ukraine. It basically has become an inflection point in terms of the use of small distributed drones and loitering munitions, kamikaze drones such as the Switchblade, in terms of what it could do for warfare. And I think that this is an inflection point not only for the U.S. defense industry, but also for our allies around the world

who need this capability. So we're in the forefront of all that. Yeah, so basically, when we have these conversations about the future of war, the future of conflict is unmanned, you're at the forefront. That's all we do. Everything we design and develop and manufacture and distribute and sell to our customers

are all unmanned systems, whether they the ground robots, in the air, in the stratosphere, even the atmosphere of Mars, as you know, the Mars helicopter is something that we help JPL develop for the ingenuity. Yeah, and of course you get a lot of attention for the drones, things like Switchblade, but you do have this portfolio of space business as well. I guess walk me through that piece of the company and how it fits into the broader revenue scheme. So we are really, as a fundamental company, we're a technology company. Defense happens to be our largest customer and market that we serve. But we make systems that go beyond just defense in terms of its applications.

Two of our product lines or capabilities have very direct implications to space. First one is our solar stratospheric HAPS airplane or high altitude pseudo satellite. Imagine an airplane that has a wingspan of about two to three feet longer than an Airbus A380, but it weighs as much as an SUV and it's 100% solar powered. It takes off from a runway, gravel runway actually, it's not even paved runway, and it's 100% solar powered. It takes off from a runway, gravel runway actually, it's not even paved runway. And it takes about six hours for it to get to the stratosphere, which is almost 65,000 feet, about two times higher than a commercial airliner, roughly. And once it gets there, because it's solar powered, it stays there for months at a time. And it acts as a stratospheric satellite. So it's in the stratosphere, it's

about 20 kilometers from the ground, and it's much, much closer than a LEO satellite or a geosynchronous satellite. They're in a few hundred miles to a few thousand, tens of thousands of kilometers as a geosynchronous. So we're much closer. We can take off from a runway. We can go stand there and provide connectivity. So there's multiple applications for it. One is to basically compete with satellites and cell towers for telecom. Our partner in this is SoftBank Corporation of Japan. They've invested in this capability.

We're the leader in this space, and we've got an airplane that actually we demonstrated the capability about two years ago. And we're now in the process of building the final configuration that we're gonna try to certify through FAA. It'll be a commercial airplane, unmanned, that's gonna provide connectivity for commercial applications. There's also a whole bunch of defense applications for this drone.

As you can imagine, areas of the world where we wanna have persistent overwatch or communications for the battlefield. So that's just one of our products. Another one that we have is our Mars helicopter. We were fortunate to be selected by JPL, Joint Jet Propulsion Laboratories, and NASA to develop the Ingenuity Mars helicopter. And that helicopter has had a tremendous success since it landed on Mars. It was considered to be a major success if it had five flights. Now it's been through 54 plus flights and it has withstood the really really rough Martian winter and

come back awake, alive and it's still flying. And so now- It's pretty incredible. Yeah, and so now we're working with NASA and JPL for the next mission on Mars, where it could be a helicopter that could retrieve the samples that are supposed to come back to Earth. That's not totally funded yet. We have a contract,

and we're working with JPL and NASA to see how that mission will go. Oh my gosh, I have so many questions, but I guess I guess I'll start backward. So you mentioned it's not totally funded yet. It's like what a $10 million developmental contract. I mean, when could you see something like actual samples being brought back from Mars? I mean, is this still years away? Yeah. So this is really up to NASA in the mission for Mars.

The next mission is supposed to, you know, at least for now, it's planned to take off from Earth, be launched sometimes around 2028. It arrives on Mars in 2030, and it'll be back on Earth sometimes around 2032, 2033. So it takes that many years to prepare for this and to get there. Of course, it's month plus journey once you go from earth and you go into space it's a long ways to mars and it's a long trek to get there and once you get there then it's usually today for example it's a 4d mission one day to fly to the site close to the sample a day to pick it up another day to fly back close to the site where the recovery vehicle is and then another day to put it in the vehicle and send it back to Earth.

And it's all have to work without any human intervention, and it's all basically autonomous. It's going to be, you can't really be real-time controlling it. It has to do everything on its own. Okay. What do you expect, or I guess what is NASA expecting to find in terms of samples from the crust of Mars? Well, the whole humanity is curious as to what we're going to find.

This is a massive, massively big, big moment for humanity in general. This is the first time that we've flown in another atmosphere outside of Earth, number one. And now we're going to be getting samples from that planet that can tell us a lot. And this is not my area of expertise, but I mean, the possibilities are phenomenal. You know, it's enormous. Was there life on Mars before? Was there water there or not? And I'm sure you can research this or look up JPL and NASA does a great job of explaining all this. What was really most important was that we could demonstrate and prove that you can fly on another atmosphere, an atmosphere that is like one one-hundredth of the Earth's density. So the amount of air that you have to achieve flight is one% of what it is on Earth, on Mars' atmosphere.

So it is very, very difficult to basically take off and achieve flight. That was the biggest milestone with ingenuity. And so now that we've done that, it opens up an enormous amount of other possibilities around the universe, essentially. But of course, we're going to stay to our planet and our system so far. Lots of other planets and moons have atmospheres. And so this is a very, very exciting frontier, which is going to be explored probably for generations beyond us. Wow. So you see this as a future, a major opportunity, not only for space exploration, but it also sounds like potentially a revenue-generating opportunity over the long, long term. Absolutely, because, I mean, fundamentally, this is the beginning of a space robotics business for us.

The first mission, Ingenuity, was more of an experiment and to push the I Believe button that you can fly outside of the atmosphere of Earth. Now that we can fly on Mars, there's lots and lots of different missions. There's talks about, as you know, to colonize Mars one day. And that would require a lot of things. If you can fly on Mars and you don't have to always drive or ride on a rover, it makes many, many things easier. It takes less time, obstacles on the way is avoided, etc., etc. So, yes, for us this means that the beginning of a potentially space robotics business. And this is an area

that we have a lot of expertise in. It so happens that the atmosphere of Mars is roughly the same as the atmosphere of Earth at about 100,000 feet, which we have flown into before. Okay. And the stratosphere, you have similar challenges as you would have on Mars' atmosphere. So what we're learning on our solar stratospheric airplane very much applies to the Martian flights. That's so cool. Okay, I want to get into the HAPs a little bit more.

Sure. But first, just one more question on this with Ingenuity specifically. Is 54 plus flights, it's exceeded NASA's expectations. Is there any sign that it's sort of ending its life cycle or it just keeps going and surprising everybody? It has been the tough, tough UAV that keeps flying. I mean, it's just breaking everybody's expectations. I mean, blowing away every expectation you can imagine. Obviously, there's going to be an end to this life someday.

And eventually, something will wear out and will not last. But it's been way, way more successful than anybody ever thought. And obviously the credit goes to both teams, NASA, JPL, and AeroVarmin, that pulled off this incredible human achievement. Yeah, I mean, I remember looking at the video of the first hop and what a major milestone that was. Okay, let's go back to HAPS then. So the stratosphere.

I think back to the Chinese spy balloon from earlier this year, which kind of cast a light on how much activity is actually happening in the stratosphere, whether it's from the surveillance and more national security defense side of things, or even to your point, the opportunities around connectivity and competing with terrestrial cell service. Yeah. So the stratosphere is a big chunk of our overall atmosphere on Earth that is really not harnessed much at all. There are very, very few sort of

man-made assets that even fly in the stratosphere today. There's a couple of two to three airplanes that was ever made to be able to fly there. So in terms of harnessing the stratosphere, we have a tremendous opportunity as a global humanity, sort of civilization. We always believed that being able to fly and achieve persistent long-endurance flight in the stratosphere could be very, very valuable and applicable to lots of different applications, commercial, consumer, defense, et cetera. And so we've developed several stratospheric airplanes in our history. Over the last 20 years, we still own the world's record on a solar UAV that has flown close to 100,000 feet above sea level.

And we set that record about 20 years ago, and it still is the record, on the Guinness Book World Record, actually. The problem was that the economics of solar cells and batteries and the performance was not there to be able to make this commercially competitive. And so what's happened over the last decade is the performance of solar cells and the cost of solar cells and batteries on both ends have improved significantly and the curves

look even more promising as we go forward. And what that has done is now allowed a stratospheric solar airplane to be quite competitive to terrestrial cell towers and even LEO and geosynchronous satellites. Yep, exactly. I mean, it's incredible. So, and I know you're partnered up with SoftBank on this, then. Do you work with the telcos as like a supplemental service or do you roll out a service that directly competes like what does this look like yeah so think of it this way um we want to be the airbus and the boeing of the solar stratospheric airplane okay and think of haps mobile and softbank as being the airliner

they are going to um acquire airplanes from us and they're going to operate a constellation of this to provide connectivity for everybody around the world. So you're competing with like the cell towers themselves essentially. That's right. And so this is another option. I don't believe that there's one technology that takes it all. The use cases are so wide and large that there's a sweet spot for pretty much almost every capability or application and technology.

There is a real good value proposition as as we all know, for cell towers, trust cell towers. But there's countries, there's islands that they don't even have the infrastructure to power a cell tower. I've been to cell sites where people actually steal the backup generator fuel from a diesel generator that powers the cell site. So challenges are significant in terms of different areas. There's still two plus billion people around the world who don't

have access to broadband connectivity. And so SoftBank's mission is to connect the world. They are a truly, truly connectivity player and the largest in the world, one of the largest ones. And so they have studied LEO satellites, geosynchronous satellites, cellular test cell towers, and when they saw our SunGlider HAP technology, HAPS technology, and what it could do, they said this is the technology we want to bet on. And so, so far we have developed a capability, and I am a firm believer that one day it's going to basically commercially deliver, you know, this capability to millions of people around the world. So when does one day happen? And also, what are the defense applications to this?

Great question. So I would wish and I would love for the day to happen sooner, but some of it's in our control and some of it's not. The business plan has a three-phase business plan. Phase one was to design the airplane, build two of them, and push the I Believe button, fly it and demonstrate the capability. It took about two and a half to three years. We did that over the first two and a half, three years of this program. We completed that with a successful flight from Spaceport where we flew an LTE payload and we actually did a Zoom call, HD quality from Spaceport connecting Spaceport, New Mexico to Washington, D.C. to Valley, and to Tokyo, Japan.

And I was on the call, several calls. It was better than probably half the calls that I make from landlines. Pure broadband, no latency, great HD quality. It's a Zoom call, it was a Zoom video call. So that was the first phase. Phase two is now to take all the learnings from that, design the ultimate airplane,

and then this is the airplane that we're going to certify through FAA and other agencies. We're sort of in the middle to half of that phase two business plan. The unknown unknown here is how long would it take for an organization such as FAA to certify an airplane like this. They have never done this before. There's never been an unmanned aircraft that is 100% solar powered, has no humans in it. There's no fuel on board that is going to fly in the stratosphere that they have certified.

So we're actually making the rules and the regulations with them, helping them as we go through this process. And then phase three is to start launching the capability and have airplanes fly and have orbits where they provide connectivity. So phase two, the end of phase two and the beginning of phase three could overlap. Because there might be some countries that says, I would like you to come and provide services on an experimental license rather than you have that full type certification. And that could happen.

There's lots and lots of places around the world that they need connectivity and this is not this is not similar to getting a 737 or Airbus a380 certified it's just different complete different use case so that's the unknown but we're very confident because we're working with FAA and with Softbank to get done. And we are quite optimistic that it's going to be done. Exactly when? We don't really know. Okay. Final question for you, whether it's the stratosphere or whether it's space robotics, the role that AI plays in all of this autonomous hardware, all this autonomous technology. Yeah. So it's ironic because today there's a lot of talk about AI and

autonomy and almost every company that, yeah, we have been doing some elements of autonomy for more than a couple of decades. So for example, if you have one of our Pumas as a soldier and you're flying it, you're not technically flying the airplane all the time with a joystick. You can do that, but the software on board actually does all that. You basically tell it on your tablet as to where to go. You say go from point A to point B, and you tap and designate, and then basically the software on board does that. So there's a lot of what I call autonomous flight built into our systems already.

The future is way beyond that. The future, actually, that we're working on is allowing a UAV to fly without GPS signal, no satellite. If there was a conflict, you know, Chinese and the Russians know where our satellites are. The first thing they'll probably do is take out the satellites and cut off our fiber optic cables that are under the ocean lines. So comms. You need a different way of connecting and communications. That's one application for even our HAPS business for defense. So autonomy means that you should be able to fly on your own, use your sensors on board, not rely on a satellite or a GPS signal, and you don't even have to communicate to a ground control station, to an operator.

And I say, go in this direction. If you find this asset, whether it could be a Russian T-72 tank or a certain type of ship, you find it with higher level of accuracy and reliability and certainty than a human and then you can actually conduct the whole mission. So that is the vision and that's the goal that we're trying to achieve. We launched one of our first products this year commercial I mean the for defense customers called Puma visual navigation system Puma VNS and what it is basically if you have a PUMA UAV or drone, you buy this module, you plug it in, it's very simple, any PUMA can get this, and then you don't have to have GPS signal.

It actually uses its own sensors, similar to a human eye and human sensory system. It says, I know where I am in relations to the rest of the environment that I'm in. So I can see this rock formation, I'm comparing it to a map that's in'm in. So I can see this rock formation. I'm comparing it to a map that's in my library, and I can figure out exactly where I'm at. And then I can figure out where to go. So these are the things that we're doing to build upon. And the future is fantastic in terms of innovation.

I mean, there's so much that can be done here that's amazing. And we're really focused on delivering the most highly innovative, capable solution and differentiated solutions to our customers. And that's what we've done for decades, and we're going to continue to do that. That does it for this episode of Manifest Space. Make sure you never miss a launch by following us wherever you get your podcasts and by watching our coverage on Closing Bell Overtime. I'm Morgan Brennan.