Episode Transcript
[00:00:03] Speaker A: Welcome to AINA Insights where prominent leaders and influencers shaping the industrial and industrial technology sector discuss topics that are critical for executives, boards and investors. INA Insights is brought to you by INA AI, a firm focused on working with industrial companies to make them unrivaled segment of ONE leaders. To learn more about INA AI, please visit our website at www.aina.AI.
[00:00:40] Speaker B: Good morning and welcome to a new episode of Titanium Economy podcast hosted by aina. Today we are joined by Wahit Nawabi who's the chairman, CEO and president of av.
AV is an industrial leader at the forefront of defense technology and AV plays a critical role in shaping the future of national security through cutting edge drones, robotic systems and AI integrated platform. Wahid himself brings a powerful mix of leadership and engineering depth and a multi sector experience to this role and we are very thrilled to have Wahid today with us. Thank you for joining us Wahid.
[00:01:09] Speaker C: Great to be with you.
[00:01:10] Speaker B: Anit Wahid, just to get started, can you describe a little bit of AV's mission and its position within the defence sector?
[00:01:17] Speaker C: Sure. So AV has been around for almost 50 years. A little bit over 50 years.
In the last two decades we've really focused on building the next defense tech prime solution provider to the US military and our allies. We recognized about two decades plus ago that the way that warfare and militaries are designed, equipped and operate is going to be changed.
It needs a overhaul, so to speak. And most of that is because of the fact of the unmanned systems, things that are not doesn't have a human in it directly. So it's a combination of unmanned systems and all different domains we refer to it being underwater, on the water, on the ground, in the air and the space. Those are the key domains. And we wanted to build a company that actually is in the leading edge of taking these solutions and integrating them with AI and autonomy and essentially automating and simplifying a lot of things and actually doing a lot more for our war fighters. And so we've been focused on that from the beginning of the last almost 30 years now. And we're the leading player in that space. We provide the largest number of drones for the US military in terms of numbers. We export to close to now 100 countries, our allies around the world. And we're known as the company that can not only innovate and disrupt the market, but actually deliver at scale. And so our goal is that we want to continue building that portfolio and, and provide that type of, we save lives. That's ultimately the core mission of the company. And to do that though, we have to develop these solutions and integrate them and enable them with AI and autonomy and do that. That's the way we go about our business.
[00:03:00] Speaker B: Yeah, and I think the one thing that you talked about is that the innovation is the core of it. And I was just reading about you and the company and like some of the critical achievements that you've made, like in terms of the highest altitude solar power flights and some of those things.
Talk to me a little about this DNA of innovation that you have within Navy.
[00:03:19] Speaker C: So the company was founded by a world renowned Caltech PhD Dr. Paul McQuady, who was just an incredibly imaginary individual. His imagination for what the future should look like and what to do is remarkable. We have seven vehicles in the Smithsonian Institute as the world's first. The latest one I believe is going to be or is right now the Ingenuity, which is the Mars helicopter that we designed for NASA. We designed that helicopter and actually built it right here across the street in the other building that we're in in California. And so innovation and disruptive innovation really has been at the core of the company. Most people don't know, but he was one of the first companies that designed the first modern electric vehicle for General Motors back 20 plus years ago.
And the car was ahead of its time. That vehicle is also in Smithsonian. It was called EV1 and the prototype was called GM Impact.
And we did that entire vehicle outsourced essentially by General Motors to Aerovarmen. This was 30 years ago, almost 25, 30 years ago. Highest flying solar airplane, unmanned airplane still is the Guinness World Record aerovironment close to 100,000ft above sea level. We reached like 96,000 and change feet above.
The first human powered flight across the English Channel was an AV airplane that was designed by our engineers and flown actually with a cyclist as an engineer who just got into the vehicle and flew it across from UK to France, across the English Channel. And so we've done many, many things like that. And today if you come to the company, you'll go and visit different departments and different cells. We call them engineering innovation cells. You'd see people working on stuff that is remarkable.
And that's just been the history of the company. And I think that is truly a major part of the DNA of the company. Now there's one little difference between us and many of the companies where we don't just do innovation and disruptive innovation for just prototyping and do a cool thing. It's really to actually transition it then at Scale at really, really rapid, rapid speed. Typically our product development cycle is about a year to two years from concept to actually production and the airspace and defense industry, it's usually a decade to decade and a half. And so that difference is also a huge, huge unique characteristic of the company. But 40, 50% of our employees are engineers, maybe more. And we invest close to last year we invested 12% of our revenue or 13% of our revenue in R and D, internal R and D.
So as a percentage of revenue we're as high as the dot com and the Silicon Valley.
Pure tech companies that's out there.
[00:06:14] Speaker B: That's actually very impressive to know and some of the things that you highlighted, right and then some of your sort of old innovations have made it to like Smithsonian. That's very impressive to know actually just continuing on that particular theme, right. Especially as you pointed out, you are in a very fast moving, innovation led environment, especially in defense tech and people is actually a core part of the asset base that you have to drive that innovation.
What are the principles you use to drive these high performing, mission driven teams?
[00:06:44] Speaker C: So you had a very, very important nerve in my view for me and for our company, which is the people.
I'm a very firm believer that our company would not be where we are and who we are if it wasn't for the talent that we have in almost every aspect of the business. It's not just engineering, of course. Engineering is a very heavy part of it. But across the board we look for people that think differently. They can think outside the box, they can actually solve problems in a very non traditional way.
They don't require a lot of instructions on how to do things. We give them a tremendous amount of flexibility and freedom and and let them sort of explore and experiment and make mistakes. It's a fundamental part of it and that is very, very key. If you were to ask me, my top three strategic priorities on a daily or yearly or long term is the quality of our people and their satisfaction and happiness and their pride. We call it engagement. We actually do a survey every year, third party to assess that and we won that, you know, one great place to work for the last four or five plus years consecutively. And we score really high there. That's one, two is the culture. As we grow, it is really important for us to keep that DNA in the culture and the way we actually do things. Very, very core. And then of course third one is about whether it's a strategy and where do we place our bets to go where we are. That occupies an enormous amount of my, my time and my energy, because I think that's really critical to the, the success of the company so far and will be in the future as well. In terms of people, you know, it's amazing. I mean, we have people that are like, remarkable in the fields that they're in. They're world renowned. I've been to recently, I met a professor at a university, UC school, actually, who said that he was inspired by the founder of AV to go into aerospace engineering. And, you know, now he has, you know, he's a full professor teaching aerospace engineering. And so that's not uncommon. Or I met somebody a few weeks ago in D.C. that said, I remember when you guys did the first solar airplane flight, and I now hear about your sun glider that is basically flying now again to provide 5G connectivity for the world as an alternative to Starlink or geo satellites and cell towers. So that's core to our company and our DNA. And I think we are going to continue to focus on that as we go forward.
[00:09:20] Speaker B: And it's always a very fine balance. Right.
Giving your employees the freedom to explore and fail while at the same time innovating at a very fast speed. How do you strike that balance?
[00:09:32] Speaker C: Well said, Neet. You absolutely know what the challenge is. The challenge is, how do you strike the right balance? So the way we do it is I'll give you a little bit of a concept on this, and I'm going to get a little technical here, is that there's been a lot of talks if you're in the engineering field, you know what product development process.
Yeah. And you know, there's merits to going fast and making mistakes and learning by experiments. But also there's also merits in going very methodically and being predictable and all this. The analogy that I give is as follows. If you were to ask me to go drive from here to Los Angeles International Airport, lax, and if you wanted me to be very accurate in exactly when am I going to get there and how long it's going to take me to get there and how am I going to get there.
Sure, I can go, spend three hours, do a lot of homework and map out my route and give you a blueprint of exactly where I'm going to go and each turn and each exit on the highway and which road I'm going to take, which is basically following Google Maps and say I'm going to be there by this time, at this time of the day if I leave now.
And what's going to happen is that most likely I'm going to put a lot of cushion in, in that schedule, okay? Because I want to not miss my, my deadline, right? And so I will be very predictable, but it won't be the most efficient trip from here to the airport, you know. And so instead of maybe taking an hour and a half, my plan for you would be like, vineet, I'm going to get there, but it'll be three hours.
And so I may end up getting to the airport an hour earlier, and I'm just gonna just park somewhere until the exact time, and I'm gonna show up right at the exact time or I'm gonna pace myself throughout the way.
That is a culture you want to avoid when it comes to that particular mission or exercise. But then there's another mission that says, you know, we have to put a helicopter on Mars, which we've done at the belly of the rover Curiosity. It's gotta, look, you have this space and you do not get to talk to it once it leaves. And it takes six months to actually get on the ground, on the surface of Mars and wake up and become alive and basically tell you, oh, I'm awake, I woke up, I'm on Mars. What's my next instruction in that process? You do actually want to make sure you take your time, and you do want to make sure that the mission is 99.999%, if not 100%, guaranteed that it's going to be successful. Because if it isn't, then you blew away billions of dollars and years of effort. So what we have developed is what we call a customized product development process.
If you're experimenting at early stages and the product program is the profile of going to the airport, then it's okay to make a left or right wrong turn and get there five minutes or 10 minutes late. You build a little bit of cushion in your schedule and you're going to.
And you're going to practically make a better decision. But if it's actually getting to Mars, you're going to have to do a different discipline of how you develop this product and how you go about testing and verifying things. So that's how we do it. And it actually has been working well for us. It's always a struggle. It's not perfect, but we have this way to actually categorize them in five different types of development.
And there are different phases and stages and different requirements.
And the team seemed to and was internally developed. We kind of like took the things that were done everywhere and we asked these bright people, says, if you were to do it, what would you do? And that's how we came up with that process.
[00:13:10] Speaker B: No, actually, and thanks a lot for sharing that because I think this is one of the themes that a lot of leaders that I have connected with. They want to set it up that way. Right. They want to give a freedom to the teams and they also want to then innovate at a faster space.
And it's always been a struggle to find that right balance. So definitely, I think some of the things that you shared will be very helpful. Now switching a little bit to the product portfolio of av, especially with the bluehell acquisition, you have a very comprehensive and a complete portfolio in many ways. Can you talk to me a little bit about some of your recent product innovations that you're proud of and what does the future entails in terms of the technology?
[00:13:47] Speaker C: So when I came to AV first, one of the first things I did, I said I want to go meet with some customers. I want to just actually sit down with a soldier, a special operations person or a army customer and three star generals as well. And I learned some things throughout the way that basically tells me what is it that really what we do and how does it actually matter in terms of a portfolio? It is like this is the best sandbox a kid could have, you know, if you're an engineer and this is the best place to be in my view. There is hardware and in hardware there is aeromechanical structures, propulsion, you name it, materials, composites, motors, electrical power. And then if you look at software side is a whole world of software. We do anything from embedded software deep into a processor to all sorts of graphical user interface autonomy, AI, computer vision.
It's all bundled together to develop a system that then actually achieves a mission. And so we've actually created some of the categories that we're in. We invented the category loading Munition as a term did not exist before we coming up with coming up with Switchblade.
You know, switchblade became the terminology for loading munition. One way attack drone was unknown. We were the ones who actually were using that a decade ago. And we came up with those terminologies and we actually even educated our customers with it.
So switchblade, you know, it's a phenomenal capability. Red Dragon is the next version or the next phase of this one way attack that I think is going to be probably as big, if not bigger than Switchblade as a franchise for us. Our small uas. We've got some, you know, small unmanned aircraft systems we have a whole portfolio. I mean, if. So back to your initial question.
If you were to build a company from the ground up and today and you say, I want to build the next gen defense company for the US Military and our allies, what would that look like?
That was our number one question when we went on in this endeavor and for myself 25 years ago, we said, you know, today is great. We do some stuff here and there.
What does our market and our customers want us to be like 10 years from now, 20 years from now? And we really had that vision. Not all of it. Absolutely not all of it. And we made a bunch of tweaks and turns, but that was core. So now we are. And essentially every domain you can imagine, we have systems that are underwater robots that go and actually do things underwater. We've got systems that drones that can come out of a submarine and opens its wing out of the water and then start flying. We've got systems on land, on water as well. On land. And then of course, the things that fly ground robots to drones loading munitions. And then the other two categories that Blue Halo brought to us is the space comms and space domain. We did not really have a lot of expertise in that area. We had some engagement with the Mars helicopter and counter uas, counter drones. It's an area that we always wanted to be in. We just had too many things to do. We just couldn't do all of it all at once. And Blue Halo is the leader in those two, plus also the cyber and intel aspect. And it's mostly defensive and mostly offensive cyber operations too. Very deep expertise in that area as well. So they bring those things. Plus the last piece I want to add, which has sort of implications on both counter UAS and other things. Communication is directed energy. We believe that counter drones and counter missiles and hypersonics. It's going to be a layered approach to how you defend against targets and threats. And you need. It's. There's not one silver bullet that solves every problem. So you have to have a layered approach of building a solution set that detects, identifies, categorizes, and then actually engages and neutralizes different types of threats in that entire arena. And so Blue Halo essentially brought a significant amount of capabilities that's complementary to AVA with almost no overlap.
[00:18:08] Speaker B: I want to focus on one of the things that you said, and I've heard it say you say that before as well. Right.
Basically you had a vision to build a company that will cater to all the current and the future needs, and you wanted to position AV in that way. I'm sure a lot of thinking, planning went into positioning AV in this unique way. Can you walk through that journey a little bit for our audience?
[00:18:32] Speaker C: Sure. So, yes, there was a lot of thinking, a lot of planning, a lot of execution, a lot of tough decisions. And some of it was also fortunate in timing. It's not always 100%.
You plan it and it happens that way.
And I consider that fortunate part to be prepared. What's the definition of a luck to me is preparation, meeting, opportunity. What it took. It does take nerves, it does take patience.
There's a saying with Nav that I truly believe it's true. And it's not something that I've created. It's actually my predecessor that used to say this, that we're typically about a decade ahead of our markets and our customers.
And the reason for that is primarily because of a concept that I learned a long time ago, which is customers are always right on what they need, but they're not always right on what they want.
And so I explain this to every new hire that comes to the company because I truly believe in that. And I learned this from someone else in my past, a mentor of sort.
Customers are right on what they need is. So you need to get from here to lax. That's a need because you have to go and get to lax. You have the flight to catch. But if you said, I need a bicycle or I want a bicycle, and I said, why? You're going to say, because I want to get to lax. Your want doesn't match your need. You know, a car is a more practical way to get there. And so I. We fight this every day with our customers. They keep talking about what they want instead of focusing on what their need is. And so that DNA is part of why I believe we have been successful. We've really focused on the what is the mission that the customer is trying to achieve? What is the real problem they're trying to solve? And a lot of our products actually encompasses those requirements. Deep, deep level, lower level requirements that then we build into features and capabilities in the solution set. So that is another part of our culture, DNA and strategic way of building products. Red Dragon was done that way. Red Dragon, we were actually in the field with our customers watching what is working with Switchblade and what things they cannot do with it. And we said that is something else. This product is not meant for that mission. There's tremendous amount of missions that Switchblade can do very effectively and better than anything else. But this other set we need to develop a new capability that was with that. So that's sort of like how we've done it as well as a company.
[00:21:08] Speaker B: Perfect. No, and I think the one thing that you talked about, right. It's very powerful in really trying to understand what the customer needs are and building a solution around that which sort of exceeds their expectations. And I've seen a lot of, like, you know, successful companies, successful leaders, really trying to get connected and have a very strong pulse on, you know, what the market needs are and designing a solution around that. It's good to hear that from you as well, Vaidya. I want to talk a little bit about sort of even your experience coming into av. You have led multiple complex business units around electrical equipment and energy, and now you are in defense. What frameworks have you used from those other industries that help you at ad?
[00:21:49] Speaker C: Sure. So, I mean, I started my entire career in the commercial world, tech world, a company called American Power Conversion apc, which we eventually was sold to Schneider Electric. We were a very small startup up in Massachusetts, Boston area, with three MIT guys. And that business, we grew really rapidly. It's almost to some extent, very similar to av. And one of the reasons why I came to AV was because it looked and felt like the old APC days that I was there. And I think there's a lot of similarities on how I approach things that I learned there that I'm trying to apply here.
So, you know, we all learn a lot throughout our career, and those learnings inform our actions and our decision making and our way of actually doing things. Clearly, I've learned a ton of stuff here at AV throughout my last 15 years or so. But the first 16 years of my career at APC, I learned tremendously as well. And the good thing was that throughout the time, we grew from a very small company to, you know, a Fortune 700 in our two and a half billion dollars in revenue and 10,000 employees. And I got to do so many different things, and I actually took the time and I had the desire to make lateral moves without even a compensation increase because I wanted to go learn about something else, whether it was product management or it was operations or something like that. So I got exposed to international expansions and all those. So to me, that those experiences, those and those people that were leading those functions helped me a lot. I'm very much fortunate to and indebted to their. To them teaching me these things and helping me learn those things. And of course, I try to bring as much of that the better the best parts here that's applicable. And then obviously I've learned a tremendous amount here as well. I mean I learned things from our teams every day. I learned something yesterday and this week. I mean I really enjoy and I make it a point to spend time with our people that helps me understand what they do, how they do things, what their challenges are to help me do my job better.
[00:24:03] Speaker B: No, that's, that's very good to hear. And, and I think you, you know, you, you definitely bring a lot of hard skills, but you definitely bring a lot of soft skills as well. Right. From your previous roles that you're now embedding in av, we talked about one of those things as the innovation. The other thing that is very critical, at least in this industry, is the quality, reliability, performance. Right. Because these are going in very mission critical applications.
Just want to understand how do you imbibe the culture of this safety, quality, trust across the system within the avneet.
[00:24:37] Speaker C: I'm glad you asked that question because this is a very key question for our market today and the competitive landscape, the change in strategy, defense strategy and posture, and the emerging emergence of our, what I call global adversaries. There's been a lot of investments in venture backed companies.
Some are considered unicorns in terms of their valuations and their progress to basically get into this business and actually make some money, which is all fair play and rational. And there is, I believe, a rude awakening that's going to be coming sometimes in the near future and that is that it's, it's goes down. Goes back to a statement that I heard one time, many, many, many years ago from Elon Musk.
You know, he made a statement once that something, I'm paraphrasing it, that developing a prototype is 10% of the effort.
Producing it in volume, at scale, reliably and cost effectively is the other 90% of the effort.
And we know about the history of Tesla, that they had some very rough times when they were transitioning to full production, the Model S, the Roadster, et cetera. And that is so true in our space. The requirements, when you get to the operational requirements, requirements, logistical requirements, lifecycle management requirements for any of our products is this thick of a book by our customers.
And, and it's not because they just want to write a lot of stuff. It's because it's that, that rigorous and that difficult. You know, perfect example.
I had bought a hobby drone for my son when he was younger, about a few years ago and he crashed it in the second Day, yeah, he hit a tree and the thing fell apart and became obsolete for maybe one month until I got the part to fix it. And that was a consumer type drone. I could not fly it in rain, I could not fly it in very windy conditions. If there was a dust storm, say no. If it was really hot, the actual tablet did not work.
And then the second one that I bought, it allowed me to use my phone, my cell phone, as the display for it. Well, if you go on a very shiny day, like a sunny day like today, most of these phones, you can't see that well. And if you're a soldier, you're going to have a helmet, you got glasses, you've got stuff. And that whole thing just becomes piece of crap.
It doesn't work. You know, and so we don't have that luxury when we make a product and it has to be deployed. And, you know, North Sea or the deserts of the Middle east or exactly extreme conditions, they take it out in Russia or in Ukraine and it's in the middle of a, you know, snowstorm or it's raining and it's got to be able to do all those things. So we invest enormous amount of energy to make sure that our products and our solutions meet that highest level of standards of our customers. And knock on wood, knock on wood. We have a very good reputation on that. We have definitely our fair share of setbacks and mistakes, but we use that to be better. And that's something that takes time.
There is no shortcuts. You just can't shortcut making something by the tens of thousands from prototypes by saying, you know, I just, I know how to do that no matter what the product is. It takes effort. You know, it has taken us over a decade to get to where we are with switchblade. And yeah, we can produce, we're the largest producer today by the thousands of loading munitions. But it didn't happen overnight by accident. It took years and years of rigor. And so I think there's going to be a value of debt somewhere where some of these companies are going to learn the hard way that yes, I can make a prototype and I make a nice video, but can I make thousands of them at scale? That's a different ballgame in my view.
[00:28:54] Speaker B: Yeah, and I think, you know, yeah, you're absolutely right. Like, getting to a mass production at the cost at scale is very difficult. And I think you guys have actually done it in spades and sort of, you know, that's what the market differentiates you about switching a little Bit to some of recent trends around AI and ML. And of course AV has been on the forefront with the automation for a long time in its history. But there have been some recent advances both in the AI machine learning space. How are you embedding some of those recent models that are coming out into some of your AI enabled platforms?
[00:29:28] Speaker C: Sure. So again, another great question because this is a very core piece of our business. We do sell some software to our customers as a software, but a lot of our software as a differentiator in our hardware, there's a tremendous amount of software in our products. Probably 40% plus of our employee engineering, employee base of our engineers are some version of software engineers. Because there's so much software in our stuff, from the gimbal to the avionics, to the autopilot, to the targeting, to the et cetera, et cetera. There's fundamentally two aspects of AI that's, that's really at the core of our solution set.
One is what we refer to as autonomous operations, and then the second one is computer vision for recognizing objects, objects or targets. And those are the two primary, not the only two, but the two primary domains of AI that we have been investing heavily for the last decade. Actually way before it became even known today that we could do these things before. So what do we have to do in terms of autonomy? Almost every drone, you know, relies heavily on a GPS signal from satellites as well as they rely on full motion video to be able to autonomously to fly. Right. And so we have invested very heavily on figuring out how do we allow these systems to be able to go from point A to, to point whatever and find its way autonomously without GPS and without talking to them. That's one domain. It's a huge amount of effort that we do and it's basically embedded into a lot of our solutions.
The second part is that once you get to where you are called the contested environment of the battlefield, then you have to be able to recognize what am I looking for without a human judgment, and do it even better than a human. No matter what the conditions are, day, night, snow, rain, et cetera, et cetera. And that's where this neural networks and computer vision and machine learning algorithms come into play.
We don't use anything specific or unique when it comes to the actual large language models and algorithms.
The secret sauce is not on that. The secret sauce is the annotated data sets that allows you to train those algorithms and constantly actually update them. You know, unlike the autonomous driving car for passenger cars, we're not looking for traffic lights. We're not looking for, you know, pedestrians or walkways and roads or highway signs. We're looking for a specific model of an airplane or a Runway or a tank that can be distinguished from an enemy, from a foe.
And there's camouflage involved, these all sorts of things. There's distances, angles. And so we believe we have the world's best annotated military data set of military assets that allows us to train these things. Because for the last two decades almost, we've been actually working with the US duty getting, you know, ability to access massive, massive gobs of data that we collect with our satellites, drones, manned airplanes, you know, all sorts of stuff. And we take all that. And we've been doing this for years and years and years, and we've developed this library. Government owns it, by the way, but we have access to it and we give full rights to the government as well because they can use it. And that's what we do for a living, part of our business. And so that helped us, you know, do this a lot better. And the reason why our autonomy and our computer vision actually works way better than most out there, it's because of those two fundamental key aspects of it. And we're not stopping. We keep adding more and we keep building on it. And it's this iterative process that keeps building bigger and bigger gap between us and some of our competitors in that space. So look forward to one of these days that most of these things are going to be autonomous. They're going to go and you're going to say, go out there.
I think there's a interesting or important target. I want you to find your way. I want you to find a target survey. When you are like 90% confident, then let me know and I will either say yes or no, and eventually even that, that yes or no go away, that's coming, and most likely it's going to be more reliable and accurate in general than most soldiers. And, you know, a lot of mistakes that happen on the battlefield is because of human error. It's not because of the equipment. Yes, there's some equipment failures, too, but this stuff is getting to the point where it could actually make a very, very big difference.
[00:34:21] Speaker B: Perfect. Wahid, thanks a lot for your, you know, for engaging with me on the, on some of these questions. I really appreciate it and I really enjoyed your conversation. So thanks again and I appreciate your time.
[00:34:31] Speaker C: Thank you. Glad to be with you.
[00:34:38] Speaker A: Thanks for listening to INA Insights. Please visit INA AI for more podcasts, publications and events on developments shaping the industrial and industrial technology sector.
[00:34:54] Speaker C: SA.
