AeroVironment, Inc. Q2 FY2026 earnings call

• Record second quarter awards with a total contract value of $3.5 billion and bookings of nearly $1.4 billion.
• Achieved record second quarter revenue of nearly $473 million.
• Launched new innovative products like Switchblade Loitering Munitions, Vapor Compact Long Endurance helicopter, and AV_Halo Suite products.
• Integration of BlueHalo is exceeding expectations, strengthening capabilities.
• Expanding manufacturing capacity with a 100,000 square foot facility in Salt Lake City for Switchblade production.

The Autonomous Systems (AXS) segment recognized $302 million in revenue in the quarter, a 15.7% increase over FY '25 pro forma revenues. Precision Strike and Counter-UAS products led revenue growth with nearly a 38% increase, driven by strong Switchblade 600 and Titan sales. Uncrewed systems, including small and medium UAS, improved more than 8% from pro forma results. The Space, Cyber and Directed Energy (SCD&E) segment recognized $171 million of revenue in the quarter, similar to FY '25 pro forma results. Space and directed energy products grew more than 20%, with LOCUST Directed Energy Counter-UAS as a key driver, while Cyber Emission Systems declined due to discontinued programs and government shutdown impacts.

Fiscal year 2026 revenue is expected to be between $1.95 billion and $2 billion. Adjusted EBITDA remains between $300 million and $320 million, and non-GAAP adjusted EPS is projected to be between $3.40 and $3.55. There is 93% visibility to the midpoint of the revenue guidance range, with second half revenue split approximately 45% in Q3 and 55% in Q4, and 70% of adjusted EBITDA in Q4.

• Government shutdown impacts on contract funding and task order timing.
• Uncertainty in converting unbilled receivables to revenue.
• Timing risks associated with delivering products and achieving expected margins.

Q: Maybe just one on programs. I think you announced that you got 2 more BADGER units in the quarter. Can you just remind us how you're thinking about the current schedule of SCAR and maybe how that contributes to the expected ramp for that program?

A: Sure. So Greg, as I mentioned in my remarks, we did secure an additional task order and award from the U.S. Space Force for additional BADGERS -- 2 more additional BADGERS. The whole SCAR program, as we mentioned in our comments before, has been so far in a customer-funded development process. We're shifting now from development activity to delivering products, most of which is going to end up eventually going into our firm fixed price contracts. That transition not only ramps up the revenue for the second half of the year, but also improves the margin profile of that business. So we're very much on track with our plans. We're pleased with the performance so far, and we expect the margins as well as the revenue of that business to actually improve in the third and fourth quarter of this year and continue to improve beyond this fiscal year.

Q: This is Samantha Stiroh, on for Ron today. I was wondering if you could -- in the past, you've given a breakout of -- by product in the portfolio. I was wondering if you had any color there or if you could talk a little bit about the relative growth levels by product?

A: Well, I mean, we try to give as much granular -- we've improved our granularity this quarter by giving you further breakout of the different major product groupings for each segment. And so I tried to give some color behind that, that shows what products are driving the different growth in those different product categories. So there are kind of combinations of products, obviously, but we're trying to provide more color for you that. Was there something specific you were wondering about?

Q: It seems pretty obvious that you guys have massive growth opportunities here across the 5 to 10 different products that you guys have been highlighting. But maybe to like put a finer point on it, is there a way to think through the catalyst path over the next few months as some of the reconciliation funding starts to hit backlogs? Like what should people be looking for?

A: Anthony, yes, of course, I'd be glad to provide some more color there. We certainly have a significant amount of opportunity for growth and value creation here in the next -- not only just a couple of quarters, but next few years. We're positioned really, really well. If you look at the key catalysts for growth, loitering munition, of course, we continue to grow that category, the Switchblade and One-Way Attack drones that are in that bucket. Our RF Counter-UAS solutions, the Titan family of products is another contributor of significant growth year-over-year. Our medium UAS product line, which is JUMP20 and JUMP20X is another category of strong growth and contributor to our growth in general as well as profitability. Our P550, we expect significant orders for that in the third and fourth quarter of this year. The U.S. Army is intending to purchase a lot. There's a lot of dollars in the budget for that, and we expect to have a fairly large share of that spend with the U.S. Army. And we are also lining up a bunch of international customers for that product line. The SCAR and BADGER program and product is also transitioning to production, and we're going to deliver more seal numbers, and we're going to ramp up revenue. The profile of that revenue is higher margin as well as the volume is higher. That helps. So in a nutshell, if you look across our portfolio, we've got growth across almost every one of our key product lines. Some of them are contributing to some smaller extent versus larger ones, but they're all growing quite rapidly. One area that may not grow as much is our cybersecurity business, and that's primarily because of it's a customer-funded engineering services and software solution business that really doesn't ramp up aggressively in terms of growth. But overall, we're very pleased with the performance. We're looking for multiple quarters and years of growth. We're positioned really well with the shift in the U.S. DoD and the administration strategies. The kind of business model and products and go-to-market strategy that we have is precisely what the U.S. Department of War is looking for, and we're positioned incredibly well. There's going to be a lot of money spent. It is really hard to predict exactly how much. There's a lot of demand coming our way, and we're getting ready for it as we speak.