Given the rapid utilization of the $990 million IDIQ contract, are there discussions with the customer about increasing the ceiling or extending the timeframe?

Management confirmed active discussions with the customer regarding increasing the ceiling and extending the timeframe of the IDIQ contracts. They highlighted that the customer recently awarded another $800 million contract for similar products, indicating strong demand. This momentum supports the company's plans to increase production capacity, including building a new factory. “The customer does have the ability to increase the ceiling on these contracts and the customer also has the potential option to extend the time frame of these contracts. We've had that several times in our past.”

How is AeroVironment progressing with the Army's LASSO program and Marine Corps Organic Precision Fires Light (OPF), especially given recent competitor announcements, and what is the timing for potential awards?

AeroVironment is actively engaged and well-positioned. They were awarded initial tranches for what was essentially the LASSO program over a year ago, with competitors now catching up. The Switchblade 400 is purposely designed for LASSO. Management believes there will likely be multiple solutions selected for these programs and expects to be a serious recipient of future orders, with the Army signaling increased demand. “It is quite likely for both LASSO and OPS, Marine Corps, that there is more than one solution for the mission that they require to be part of the final selection of the portfolio of solutions they're going to have. And we feel very good about our options.”

Can management provide updates on key Directed Energy programs like LOCUST, laser comms, and JLTV integration, and discuss potential milestones given recent developments in laser weapons and geopolitical events?

Management sees an inflection point for RF counter UAS and LOCUST systems, similar to the impact of the Ukraine conflict on loitering munitions. LOCUST is performing well in multiple theaters, and customers are eager for more systems. They anticipate strong long-term demand, especially given the current geopolitical landscape, and are scaling production. While not quantifying exact demand, they expect significant growth in FY27 and beyond. “I believe we're in an inflection point with both our RF counter UAS systems as well as our direct energy local systems. I was in avocado facility where we manufacture these systems, and our customers would love to have a lot more of them.”

AVAV

AeroVironment (AVAV) Q3 FY26 earnings call: guidance and Q&A

Earnings call· Jan 2026 (Q3 FY26)· Industrials· Mar 10, 2026

Source: earnings call transcript

Executive summary

AeroVironment Q3 FY26 — Strong Demand and Record Backlog Offset SCAR Termination and Q3 Miss

AeroVironment reported Q3 FY26 results below expectations, primarily due to government funding delays and the termination of the SCAR program contract, which also triggered a significant goodwill impairment. Despite these headwinds, the company highlighted unprecedented demand for its autonomous systems and counter-UAS solutions, leading to a record funded backlog and strong order flow. Management expressed confidence in achieving record Q4 and full-year results, driven by scaling manufacturing, commercializing key products, and leveraging its diversified portfolio to capitalize on a generational opportunity in defense technology.

Highlights

Funded backlog grew to $1.1 billion, positioning for record Q4 revenue and strong FY27 start.
Year-to-date total awards reached $4.6 billion, a new company record.
Autonomous Systems segment revenue increased 38% organically year-over-year.
New 5-year sole source IDIQ contract worth $874 million awarded for UAS and counter UAS product lines.
New $186 million task order received for Switchblade 300 Block 20 and Switchblade 600 Block 2.

Concerns

Q3 revenue came in below expectations due to revenue timing and adjustments in the space business.
U.S. Space Force terminated the SCAR program contract for convenience, leading to a $151 million non-cash goodwill impairment.
Adjusted gross margins were 27%, flat sequentially and lower than 40% in Q3 FY25, impacted by $40 million of high-margin revenue pushed to Q4.
Full-year revenue guidance lowered to $1.85 billion - $1.95 billion (from prior higher range).
Full-year adjusted EBITDA guidance lowered to $265 million - $285 million (from prior higher range).

Guidance & targets

Category	Target	Timeline	Confidence
Full-year FY26 Revenue	$1.85 billion - $1.95 billion high materiality	FY26	High
Full-year FY26 Adjusted EBITDA	$265 million - $285 million high materiality	FY26	High
Full-year FY26 Non-GAAP Adjusted EPS	$2.75 - $3.10 high materiality	FY26	High
Q4 FY26 Revenue	record medium materiality	Q4 · FY26	High
Full-year FY26 Adjusted Gross Margins	high 20s, low 30s medium materiality	FY26	High
Q4 FY26 Adjusted Gross Margins	low to mid-30s medium materiality	Q4 · FY26	High
Full-year FY26 Adjusted SG&A as % of revenue	13% to 14% low materiality	FY26	High
Full-year FY26 R&D as % of revenue	6% to 7% low materiality	FY26	High
Full-year FY26 Adjusted EBITDA margin	14% and 15% medium materiality	FY26	High
SCAR program revenue contribution	less than $100 million medium materiality	FY27	High
SCAR program revenue contribution as % of total revenue	less than 5% medium materiality	FY27	High
Titan manufacturing increase	more than 4x low materiality	FY26	High
Titan manufacturing increase	more than 10x low materiality	FY30	High
JUMP 20 production capacity increase	3x low materiality	FY27	High
Golden Dome for America opportunity	approximately $0.5 billion medium materiality	next 3 years	Medium

Segment performance

Segment	Revenue	YoY	QoQ	Margin
Autonomous Systems Experienced significant growth despite government shutdown and delayed orders. Key growth drivers include Puma AE, JUMP 20, Switchblade variants, Red Dragon, and Titan counter UAS. Expects additional delayed orders to be booked in Q4 FY26 and Q1 FY27. Revenue contribution to total: 68%Uncrewed Aircraft Systems (Group 1, 2, 3 UAS) revenue growth: >50% vs pro forma FY25 Q3Uncrewed Aircraft Systems (Group 1, 2, 3 UAS) revenue growth: 54% YoYPrecision Strike and Counter UAS products growth: >21% vs pro forma FY25 Q3	$279 million	25% (pro forma FY25)	—	—
Space, Cyber and Directed Energy Revenue declined due to the SCAR stop work order and U.S. government funding delays. Space and Directed Energy products were impacted by SCAR, while LOCUST Directed Energy Counter UAS continued growth. Cyber Mission Systems decline was largely due to discontinued programs and funding delays. Revenue contribution to total: nearly 1/3Space and Directed Energy products decline: 14% vs prior year pro formaCyber Mission Systems pro forma revenue decline: 22%	$129 million	19% decline (pro forma)	—	—

AVAV operating KPIs by quarter

AVAV operating KPIs stated on its earnings calls, by fiscal quarter
KPI	This call Jan 2026 Q3 FY26	Apr 2026 Q4 FY26	Jul 2026 Q1 FY27	Change vs prior quarter
Backlog Funded	$1.1B We ended the quarter with $1.1 billion of funded backlog and approximately $3 billion of unfunded backlog. Source: earnings call transcript	$1.2B Funded backlog closed at $1.2 billion, unfunded backlog at $1.5 billion, which now excludes SCAR contract values following the contract termination for convenience announced in March. Source: earnings call transcript	$1.5B Funding backlog totaled $1.5 billion at quarter end, which is 37% higher than the first quarter of fiscal year '26. Source: earnings call transcript	+25%
Backlog Unfunded	~$3B We ended the quarter with $1.1 billion of funded backlog and approximately $3 billion of unfunded backlog. Source: earnings call transcript	$1.5B Funded backlog closed at $1.2 billion, unfunded backlog at $1.5 billion, which now excludes SCAR contract values following the contract termination for convenience announced in March. Source: earnings call transcript	$1.4B Unfunded backlog at the end of the first quarter was $1.4 billion, was $1.2 billion or 89% attributable to the SCDE segment and $157 million or 11% to the AFS segment. Source: earnings call transcript	-6.7%
Funded backlog Autonomous Systems	—	$869M Funded backlog totaled $1.2 billion at quarter end with $869 million or 73% attributable to the AxS segment and $314 million or 27% to the SCDE segment. Source: earnings call transcript	$1.1B Funding backlog composition by segment is $1.1 billion or 75% attributable to the AXS segment and $358 million or 25% to the [ FEEE ] segment. Source: earnings call transcript	+26.6%
Unfunded backlog Space, Cyber and Directed Energy	—	$1.25B Unfunded backlog finished the year at $1.5 billion, which now excludes $1.5 billion related to the SCAR program with $1.25 billion or 86% attributable to SCDE and $209 million or 14% to AxS. Source: earnings call transcript	$1.2B Unfunded backlog at the end of the first quarter was $1.4 billion, was $1.2 billion or 89% attributable to the SCDE segment and $157 million or 11% to the AFS segment. Source: earnings call transcript	-4%
Unfunded backlog Autonomous Systems	—	$209M Unfunded backlog finished the year at $1.5 billion, which now excludes $1.5 billion related to the SCAR program with $1.25 billion or 86% attributable to SCDE and $209 million or 14% to AxS. Source: earnings call transcript	$157M Unfunded backlog at the end of the first quarter was $1.4 billion, was $1.2 billion or 89% attributable to the SCDE segment and $157 million or 11% to the AFS segment. Source: earnings call transcript	-24.9%
Backlog	—	$2.7B As we enter fiscal '27, we believe we have strong momentum across our product lines and a robust $2.7 billion of total backlog. Source: earnings call transcript	$2.8B+ Total funded and unfunded backlog at the end of the first quarter was just over $2.8 billion. Source: earnings call transcript	—
Orders	—	$572M We secured bookings totaling $572 million in new authorized contract value. Source: earnings call transcript	$683M We secured bookings totaling $683 million in new authorized contract value. Source: earnings call transcript	+19.4%
Book-to-bill ratio	—	0.9 ratio Our book-to-bill ratio for the quarter 4 was 0.9x, reflecting the exceptional quarter 4 revenue performance, partially offset by some timing delays of anticipated large program awards, while our trailing 12-month book-to-bill ratio stands at 1.4x. Source: earnings call transcript	1.4 ratio Our book-to-bill ratio for quarter 1 was 1.4x and reflecting strong demand from large program awards. Source: earnings call transcript	+55.6%

Operating figures the company stated on at least two of the calls shown, checked against each call's transcript. Click a figure to read the sentence. A dash means it was not stated that quarter.

Orderbook & backlog

Funded backlog $1.1 billion Q3 FY26

increased QoQ

Positioning for record Q4 revenue and solid start to FY27.

Unfunded backlog $3 billion Q3 FY26

Includes $1.5 billion related to the SCAR program, which will be adjusted due to contract termination.

Total year-to-date awards $4.6 billion Q3 FY26

record

Visibility to midpoint of revised guidance range 98% Q3 FY26

Deals & partnerships

U.S. Army 5-year sole source IDIQ contract for UAS and counter UAS product lines $874 million 5 years

To support foreign military sales (FMS) demand, enabling allies to procure Group 1-3 unmanned aerial systems and counter UAS systems including Vapor, JUMP 20, P550, Puma, Raven, and Tiner Counter-UAS.

U.S. Marine Corps Contract for additional deliveries of Titan SV $23 million

Awarded for additional deliveries of the Titan SV counter UAS solution, reflecting rising demand.

U.S. Army Contract to provide P550 UAS for the Long-Range Reconnaissance program (LRR) $13 million

Initial contract to provide P550 UAS, with production scaling for higher volumes.

U.S. Air Force Task order extending contract to advance biotechnology and smart materials $75 million

Awarded to the Cyber & Mission Systems operating group, enhancing capabilities in laser communications, space-related satellite communications, and directed energy.

Capital programs

New manufacturing facility in Salt Lake City, Utah underway

Benefit:potential to produce more than $2 billion worth of Switchblade or other AV products annually

Progressed the build-out of the 140,000 square foot facility to scale production ahead of demand.

Risks & headwinds

Government funding delays and shutdowns Q3 FY26, impacting Q4 FY26 and Q1 FY27

Several orders anticipated in Q3 shifted to the right by a quarter or two.

Mitigation:Diversified business model, strong backlog, and focus on scaling production to meet future demand.

SCAR program contract termination Q3 FY26 and beyond

Resulted in a $151 million non-cash goodwill impairment and a reduction in full-year guidance.

Mitigation:Company plans to commercialize the Badger system, leveraging its technological lead and re-competing for the program under revised requirements. Expects minimal impact on FY27 growth profile.

Shipping and supply chain issues Q3 FY26

Resulted in $40 million of high-margin revenue pushed from Q3 to Q4.

Mitigation:Actively evaluating supply chain, identifying long lead items, and ensuring suppliers can scale with increased demand. Expects adjusted gross margins to improve in Q4.

Mix shift to higher service and early-stage products Ongoing

Adjusted gross margins were 27% in Q3 FY26, lower than 40% in Q3 FY25.

Mitigation:Focus on commercializing products like LOCUST and other Space & Directed Energy offerings to drive higher gross and EBITDA margins in the future.

What to watch in Q4 FY26

SCAR program commercialization progress

next 12-18 months for product, FY28 for significant revenue

Current Contract terminated for convenience; plan to commercialize Badger system.

Target Progress on commercial product development; clarity on recompete timeline.

Why it matters

The successful commercialization of Badger and re-engagement with Space Force is crucial for the long-term growth and profitability of the Space, Cyber & Directed Energy segment.

So most likely, we're redoing that based on the requirements. One of the challenges is to get our customers to agree to a set of requirements that we lock in lock down. And most likely it will be more of a contributor in fiscal year '28 than '27, in terms of significant revenue contribution to the overall portfolio.

Find out whether AVAV delivers this. Inve re-checks your case every morning.

Q&A highlights

How should investors think about growth and margins in the SADE segment now that the SCAR program is terminated, and what other products will drive future performance?

Management stated that the SCAR termination will not significantly impact the segment's long-term growth profile. They are bullish on the Badger technology and plan to commercialize it, believing it has a 3-3.5 year lead. Other products like LOCUST, directed gun sites, and laser communication terminals are transitioning to commercialization and expected to drive rapid growth and margin expansion in FY27 and beyond.

“So we do not expect the SCAR program to have a significant impact on our growth profile beyond this year. We're still going to have a growth year this year. We're going to have a record fourth quarter, record fiscal year performance, both on top line and profitability. And we're positioned for strong growth next year and beyond.”

asked by Unknown Analyst · answered by Wahid Nawabi

3 min read 6 chapters

Detailed narrative

SCAR Program Termination and Commercialization Strategy

The U.S. Space Force terminated AeroVironment's contract for the Badger phased array antenna system for convenience, following an inability to reach a mutually acceptable firm fixed price agreement. AeroVironment will be paid for allowable incurred costs plus a fee. The company remains committed to developing the Badger system as a commercial product, believing it has a 3 to 3.5-year head start on competitors and that the capability gap is more urgent than ever.

This commercialization strategy is expected to lead to a more flexible and profitable business model in the long term, with potential re-competition for the program under revised requirements.

Manufacturing Expansion and Supply Chain Resilience

AeroVironment is building out a new 140,000 square foot manufacturing facility in Salt Lake City, Utah, expected to be operational in approximately one year. This facility has the potential to produce over $2 billion worth of Switchblade or other AV products annually.

The company is also evaluating its supply chain to ensure suppliers can scale with increased demand, focusing on identifying long lead items. These actions are part of a strategy to build capacity slightly ahead of demand and deliver best-in-class solutions.

Autonomous Systems Segment Growth Drivers

The Autonomous Systems segment, comprising 68% of Q3 revenue, continues to be a key growth driver. Key products include Group 2 Puma AE and P550-UAS systems, Group 2 JUMP 20 and JUMP 20X systems, all Switchblade variants, Red Dragon one-way attack drones, and counter UAS solutions like Titan and FE-1.

The company received an $874 million 5-year sole source IDIQ contract from the U.S. Army for UAS and counter UAS products for FMS demand, and a $186 million task order for next-generation Switchblade 300 and 600 systems.

Counter UAS and Directed Energy Capabilities

Demand for AI-enabled RF detect and defeat counter UAS solutions, particularly the Titan family, is rapidly expanding. Manufacturing for Titan is increasing by over 4x this year, with plans for over 10x current levels by FY2030. The Locust directed energy counter UAS system is performing well in the field, with plans for commercialization and higher volume production.

The FE-1 program with the U.S. Army is progressing towards flight testing in late FY27 or early FY28. These systems are seen as critical for national defense, especially given current geopolitical conflicts.

Space, Cyber and Directed Energy Segment Progress

This segment accounted for nearly one-third of Q3 revenue. Despite the SCAR program termination and U.S. government funding delays, the segment is making progress on other key programs. The Cyber & Mission Systems operating group was awarded a $75 million task order to advance biotechnology and smart materials for the U.S.

Air Force. The company is actively transitioning other new capabilities, such as laser communications terminals and laser communication gun sites, to commercial products to scale manufacturing, improve margins, and broaden the customer base.

Geopolitical Impact and Accelerated Demand

Management noted that current global conflicts, such as in Iran, are driving unprecedented demand for cost-efficient, AI-enabled autonomous non-lethal and lethal drones and counter-drone solutions. This has led to increased requests for proposals and quotes for products like Red Dragon, LOCUST, Titan series, JUMP 20, and P550.

AeroVironment believes it is uniquely positioned to meet this demand due to its battle-tested technology, production volume capabilities, and ability to rapidly upgrade systems modularly.

Summary of the company's earnings call; see how call summaries are prepared. Not investment advice.