Q3 2025 AeroVironment Inc Earnings Call
Speaker Change: Good day, and thank you for standing by. Welcome to the AeroVironment Fiscal 2025 Third Quarter Conference call. At this time, all participants are in a listen-only mode.
Speaker Change: After the speaker's presentation, there will be a question and answer session. To ask a question during the session, you will need to press star 11 on your telephone. Please be advised that today's conference is being recorded. I would now like to hand the conference over to your speaker, Jonah Teeter-Balant. Please go ahead.
Speaker Change: Thanks and good afternoon ladies and gentlemen. Welcome to AeroVironment's fiscal year 2025 third quarter earnings called. This is Jonah Teeter, Ballon, Vice President of Corporate Development and Investor Relations.
Speaker Change: Before we begin, please note that certain information presented on this call contains forward looking statements within the meaning of the Private Security's Litigation Reform Act of 1995. These statements involve many risks and uncertainties that could cause actual results to differ materially from our expectations.
Speaker Change: Further information on these risks and uncertainties has contained in the company's 10K and other filings with the SEC in particular and the risk factors and forward-looking statement portions of such filings.
Speaker Change: Copies are available from the SEC on the AeroVironment website at www.avinc.com or from our investor relations team
Speaker Change: This afternoon we also filed a slide presentation with our earnings release and posted the presentation to the investor section of our website under events and presentations.
Speaker Change: The contents of this conference hall contains time-sensitive information that is accurate only as of today, March 4th, 2025.
Speaker Change: The company undertakes no obligation to update any forward-looking statements, whether as a result of new information, future events or otherwise.
Speaker Change: Joining me today from AeroVironment are Chairman, President and Chief Executive Officer, Mr. Wahid Nawabi, and Senior Vice President and Chief Financial Officer, Mr. Kevin McDonnell
Speaker Change: We will now begin with remarks from Wahid Nawabi. Wahid, thank you, Jonah.
Speaker Change: Welcome everyone to our 3rd quarter of fiscal year 2025 earnings conference call.
Speaker Change: I'll start by summarizing or totally performance and provide an update on the Blue Halo Transaction followed by Kevin who will review our financial results in greater detail.
Speaker Change: Next, I will provide an update on our expectations for the rest of fiscal year 2025 before Kevin John and I take your questions.
Speaker Change: I'm pleased to report that we made significant progress on our long-term growth strategy
Speaker Change: We continue to see strong demand for our solutions, while expanding capabilities and capacity as the global leader in defense technology.
Speaker Change: Our key messages, which are included on slide number three of our earnings presentation, are as follows on slide number three of our earnings presentation.
Speaker Change: First, we want large contract awards tied to key long-term strategic programs, including the U.S. Army's Lasso, U.S. DOD's Replicator, and the Danish Ministry of Defense, while growing our backlog to our record $764 million.
Speaker Change: Second, we continue to make disciplined investments, expanding production capacity, launching innovative products, and new capabilities and leveraging our acquisitions to strengthen our market leadership position.
Speaker Change: Third, despite our solid progress, third quarter financial performance came in slightly below our expectations, primarily due to the unprecedented L.A. win storms.
Speaker Change: and Ford, given recent challenges, we are lowering our guidance but remain on track for record fourth quarter revenue and accelerating growth in fiscal year 2026.
Thank you.
Speaker Change: While we encountered challenges in executing our plans this quarter, we remain firmly on track with our long-term growth strategy
Speaker Change: The defense technology sector is experiencing a generational shift driven by distributed autonomous AI-enabled solutions.
Speaker Change: We continue to believe we are uniquely positioned to meet our customers evolving needs by leveraging
Cutting in technology, unmatched production capacity, and decades of battlefield experience.
Speaker Change: We are further strengthening these advantages through strategic, organic, and organic investments by developing new, innovative products, expanding into adjacent markets, and increasing our production capacity.
Speaker Change: Given our progress and favorable market dynamics, we are confident that AV is well positioned to deliver sustained growth while certain value
what creating value for our stakeholders for years to come.
Speaker Change: The evolving global security landscape continues to highlight the critical needs for cost-effective AI-driven autonomous defense solutions.
Speaker Change: In response, the U.S. Department of Defense and Allied Nations are prioritizing the rapid deployment of uncute systems and loyding munitions technologies we pioneered.
Speaker Change: Recently, Secretary of Defense, Speed Hexet reaffirmed the administration's focus on AI, drones, counter-drones, and autonomous warfare capabilities.
Speaker Change: These priorities directly align with AV's core product offerings and long-term growth strategy.
Speaker Change: We have been proactively preparing for a shift in demand related to Ukraine this fiscal year.
while AV shipments to Crane continue to decline as expected.
Speaker Change: The conflict has underscored the battlefield detectiveness of our solutions, driving unprecedented high demand from the USDUD.
NATO, and the Pacific and other allied partners.
Speaker Change: This shift aligns with evolving US defense policy and procurement priorities further strengthening and validating our global expansion strategy.
Thank you.
To illustrate this point, let me share the following facts.
Speaker Change: With approximately $40 million worth of switchblade 600 deployments, Ukraine has destroyed nearly $3 billion worth of enemy military assets.
Speaker Change: In other words, for every switchblade 600 launched, $13 million worth of enemy military assets have been destroyed.
Speaker Change: We are now nearing the end of this transition from Ukraine to larger and more enduring growth opportunities
Speaker Change: For the full fiscal year, we expect all AV shipments to Ukraine to represent only 17% of revenues.
compared to 38% of revenues last fiscal year.
Speaker Change: Further, in total, Ukraine will represent only about 6% of Q4 revenues and is not material to our future growth plans.
Speaker Change: Despite the significant shift, we remain on track to achieve more than 10% revenue growth and $1 billion in orders in fiscal year 2025.
For more information, visit www.fema.gov
Speaker Change: Beyond our organic successes, this porter, we made significant progress towards closing the Blue Halo Transaction and preparing for integration.
Thank you.
Speaker Change: The Blue Aloe Transaction will further increase our total market opportunity and growth potential by adding space, technologies, counter UAS, directed energy, electronic warfare, and cyber-solution
Speaker Change: Through this combination, we will enhance our technology and capabilities, increase our facility footprint and deliver a more comprehensive set of solutions across the air, land, sea, space and cyber domains.
Thank you. Thank you.
Speaker Change: Since announcing the transaction, we have engaged extensively with our customers and received overwhelming positive feedback.
Speaker Change: Customers recognize that AV brings a unique combination of innovation and product leadership and are excited that the future company will have the experience and resources to successfully deliver on major defense initiatives at scale.
Speaker Change: In terms of next steps, we have successfully secured key regulatory approvals, clearing HSR anti-trust and SECS4 reviews earlier this year.
Speaker Change: Our next major milestone is a shareholder vote to approve the transaction which is scheduled for April 1st.
Speaker Change: While a few outstanding international regulatory reviews are still in progress, we remain on track to close the transaction in the second quarter of calendar year 2025.
Speaker Change: In parallel, our team has been actively preparing for integration and we look forward to sharing additional details in the coming months.
Speaker Change: As I mentioned earlier, we face short-term challenges including the unprecedented high winds and fires in Los Angeles, which tragically claimed lives, homes, and businesses in our community.
Speaker Change: Our hearts go out to those impacted, including many AV employees.
Speaker Change: While AV facilities were not directly damaged, we experienced extended periods of forced shutdowns and power outages, which disrupted both our manufacturing and supply chain logistics.
Thank you.
Speaker Change: Given the timing at the end of our fiscal year, these events partially constrained our ability to achieve our full operational goals,
Speaker Change: We are working hard to recover lost time while also executing our distributed manufacturing strategy to build resiliency for the future.
Speaker Change: Just this week, we also received stop-work orders tied to four foreign military sales contracts representing about $13 million in orders majority of which we expected to ship in Q4.
Speaker Change: Further, the U.S. government recently paused military aid to Ukraine and implemented new tariffs.
Speaker Change: The stop work orders will directly impact our Q4 deliveries while the effect of the other evolving situations is less clear.
Speaker Change: We have incorporated the estimated impact of these events into our new revised guidance and will provide further updates when appropriate.
Speaker Change: With that, I would like to now provide updates on each of our three business segments, starting with
Speaker Change: The LMS team delivered record revenue this quarter, achieving several keys to
Speaker Change: Starting with orders, the LMS team secured more than $350 million in Switchblade contracts, including a single $288 million award under our $990 million IDIQ contract.
Speaker Change: This order is the single largest award NAV's 50-year history.
Speaker Change: Global adoption is also increasing for both Switchblade 300 and 600 with 10 countries having placed firm orders and more than 20 more and active engagements.
Thank you. Bye.
Speaker Change: To meet this growing demand, we have aggressively expanded manufacturing capacity already.
Speaker Change: Additionally, our newly announced switchblade production facility in Utah will be more than five times larger than our current plant
Speaker Change: In a set to double production throughput again, positioning us to support over $1 billion dollars in annual LMS revenue by the end of fiscal year 2027.
Thank you.
Speaker Change: We expect the facility to come online towards the end of this calendar year.
Speaker Change: Despite the extreme challenges posed by the high winds and L.A. fires,
Speaker Change: Switchblade production remains on track to exit this Q4 at about a $500 million annualized run rate.
Thank you.
Speaker Change: We believe that our investments in Utah and other facilities nationwide, including those to be gained through our combination with Blue Halo, will enhance our operational resilience and mitigate future disruptions.
Speaker Change: In summary, the LMS segment continues to support our growth strategy through key awards and expanded production capacity.
Now, on tour, Uncude System Segment, or UXS
The U-Access Segment .
Continue to transition away from Ukraine to Ukraine.
Speaker Change: Related revenue, shifting to other long-term growth opportunities has demonstrated by several key strategic wins in the quarter.
Speaker Change: We recently secured a sole source contract with a $181 million ceiling to supply the Danish military with jump 20 U.S. over the next 10 years.
Speaker Change: This was a highly competitive mid-process, which reinforces our confidence that jump 20 is the best group 3 UAS available today in the market.
Speaker Change: Additionally, we were awarded a major contract with the German Federal Armed Forces to supply more than 40 uncrewed ground vehicles.
Speaker Change: This was also one of the largest UGV awards in our company history
Speaker Change: Our International Pipeline continues to grow, and we expect to announce another major International Jump 20 Award in the coming months.
Thank you very much.
Speaker Change: To support increasing demand, the team established the new P550 production line, positioning for future demand.
Speaker Change: We believe P550 will continue to lead the entire small UAS industry in terms of innovation and global adoption in future years, similar to Raven and Puma.
Speaker Change: As you may be aware, Raven and Puma UAVs have been multi-billion dollar product franchises for AV already.
We expect the same from P550 We expect the same from P550
Speaker Change: We also expanded our European presence by opening a new office in the United Kingdom, strengthening our engagement with key European defence customers and enhancing our ability to support regional
Speaker Change: At the same time, the team continue to drive innovation, bringing new capabilities to market.
Speaker Change: For example, we recently launched the new Jump20X platform, an enhanced maritime variant of our Jump20 UAS, optimized for shipboard operations
Speaker Change: We also introduced new software capabilities for Puma AE and LE UIS that provide enhanced autonomy, flexibility and performance and contested environments.
while the UXS segment is a net transition year.
Speaker Change: We remain confident in its long-term growth trajectory driven by a growing market.
Key Contract Wins
Speaker Change: New product introductions, new USDUD programs of record, and an expanding global footprint.
Speaker Change: Moving now to our McCready works segment, McCready works continues to progress the development of next-generation technologies that drive the evolution of AI-enabled autonomous warfare systems.
Speaker Change: This quarter, the team made significant progress and our new software to find autonomous, one-way attack drones.
Speaker Change: This whole new family of systems is designed, leveraging key battlefield insights and can be affordably mass-produced and very high volumes.
Speaker Change: We are seeing a lot of interest from our customers with units already delivered to early adopters.
Speaker Change: We believe this solution set will provide a crucial advantage for customers operating in high threat contested environments and we look forward to sharing more details in the coming months.
Speaker Change: We continue to expand Avacore autonomy capabilities across AV's entire portfolio, enhancing adaptive mission execution and real-time decision making.
Speaker Change: Additionally, our spotter edge computer vision software is also now being integrated into multiple other uncrewed systems, delivering advanced AI-driven threat detection, tracking, and situational
Speaker Change: These technologies further shrink than our competitive differentiation, making AV solutions smarter, faster and more effective and contested environments.
Speaker Change: McRady Works continues to push the boundaries of what is possible in autonomous warfare, reinforcing AV's position as the leading innovator in uncrewed systems and loitering munitions.
Speaker Change: And summary, the company achieved major milestones in the quarter that give us confidence in our future.
Speaker Change: However, the high winds and unprecedented fires in LA area impacted our operations, limiting
Speaker Change: Further, the recent sub-war quarters from the U.S. D.O.D. are impacting our ability to achieve fourth quarter goals.
Speaker Change: As a result, we're lowering our fiscal year 2025 revenue, adjusted EBITDA, and non-GAAP EPS guidance ranges.
Speaker Change: However, we have record backlog in a strong pipeline and remain confident in our long-term growth trajectory.
Speaker Change: With that, I would like to now turn the call over to Kevin McDonnell for a review of our third quarter financials.
Speaker Change: Kevin, thank you, Wahid. Today, I'll be viewing the highlights of our third-core performance during which I will occasionally refer to both our press release and earnings presentation available on our website.
Speaker Change: Overall, we had a mixed financial quarter with record orders and backlogs but with revenue and profitability below expectations.
Speaker Change: Our revenues were impacted by production issues related to shutdowns as a result of the high winds in the Seamy Valley area and to a lesser extent some sporadic supplier challenges as we continue to ramp up LMS production.
Speaker Change: Given the pending Blue Halo acquisition, any references to future performance exclude the impact of Blue Halo, which is expected to close in Q2 of calendar 2025.
Speaker Change: As Wahid mentioned his remarks, revenue for the third quarter of fiscal 2025 was $167.6 million, a decrease of 10% as compared to the $186.6 million for the third quarter of fiscal 2024.
Speaker Change: That's why he'd explained in his remarks, you can revenues accounted for approximately 5% of revenues in Q3.
Speaker Change: Slide 6 of the earning presentation provides a breakdown of revenue by segment for the quarter.
Speaker Change: The biggest revenue story during the quarter was our continued growth of our lordering munitions business, despite some challenges mentioned earlier. The LMS segment recorded revenue of 83.9 million, a 46 percent increase is compared to the 57.7 million during last year's third quarter.
Speaker Change: Switchblade 600 represented over 70% of the LMS revenue for the quarter
R. Uncrewed System Segment, U.X.S. [inaudible]
Speaker Change: which is a combination of our small UAS, medium UAS, and UGB businesses generated 53.8 million of revenue in the quarter, which is down 44% from last year's total of 113.3 million, primarily driven by a decrease in Ukraine revenue of 47 million.
Speaker Change: However, we expect strong growth in the UXX same in the fourth quarter driven by recent awards for the jump 20 and other products even with the impact of the stop or quarters.
Speaker Change: Revenue from our McCrady Works segment, came in at 20 million, an increase of 28% is compared to the 15.6 million from the third quarter of fiscal, last fiscal year, primarily driven by Haps, Softbank Program, and the SOAR Autonomous Resupply Drone Program.
Speaker Change: Slide 7 of the earnings presentation shows the trend of adjusted product and service revenues while Slide 12 reconciles the gap gross margins to adjusted gross margins which exclude the intangible amortization expense and other non-cash purchase accounting items.
Speaker Change: In the third quarter, consolidated GAAP gross margins finished at 38%, which is higher than the third quarter of last year due to LMS margin increases, partially offset by lower surface
Speaker Change: Now turning to adjusted gross margins, third quarter adjusted gross margins were 40% and increased from the 38% for the same period last year due to the change in sales mix described previously.
Speaker Change: Adjusted product gross margins to quarter work 44% versus 38% in the third quarter of last fiscal year The stronger year over your margin was driven by improving margins at the LMS segment due to the obtaining favorable commercial pricing on certain internally developed components
Contract pricing, favorability, and gains in productivity.
Speaker Change: In terms of adjusted service cost margins, the third quarter was at 20% versus 40% during the same quarter last year. The lower level of service margins with primarily result of lower LMS and UXS margins due to higher field service cost.
Speaker Change: We continue to expect overall adjusted gross margins of the AV legacy to business, to be approximately 40 to 41% for the full year.
Speaker Change: In terms of adjusted EBITDA, slide 13 of our earnings presentation shows the reconciliation of gaped income to adjusted EBITDA. Adjusted EBITDA for Q3 was 21.8 million, down from last year's Q3 of 28.8 million, as a lower revenue and higher SGNA expense was offset by lower investments in R&D and higher
Speaker Change: However, these higher FGNA expenses are in line with guidance for the year and I'll go more into detail that shortly. We still expect adjusted EBITDA for Q4 to be significantly higher than any of the first three quarters.
Speaker Change: Also note that we incurred approximately 10 million of acquisition related expenses in Q3. We will continue to incur these expenses related to the Blue Halo transaction in Q4 and likely into next fiscal year.
Speaker Change: Because of the difficulty in predicting the timing and amount of the transaction expenses, which impact gap net income, we're only providing revenue, non-GAAP , EPS, and adjusted e-p-a-dog items.
Speaker Change: Hessian expense, excluding intangible amortization, acquisition related expense for the third quarter was 33 million or 20% of revenue, compared to 26 million or 14% of revenue in the prior year.
Speaker Change: The increase in the adjusted SGNA expenses partially result of an increase in sales and market expense primarily driven by an increase in bid and proposal activity, along with employee related costs due to an increase in average head count to help support the growth and expansive of our operations.
Speaker Change: R&D expense for the third quarter was 22 million or 13 percent of revenue compared to 25 million or 13 percent of revenue in the prior year. This also represented about a $6 million decline from the prior quarter as we scale down the development activity on the recently introduced jump 20X all domain system and the P550 Group 2 system.
Speaker Change: LMS continues to make investments across the switchblade product line, including new variants. We still expect R&D to be in the range of 12-13% of revenue for fiscal 2025 as a result of continued investment in our long-term initiatives.
Now turning the gap earnings.
Speaker Change: In the third quarter, company generated net loss of 1.8 million versus net income of 13.9 million in the recording of the same period last year.
Speaker Change: The decrease in net income of 15.6 million can be attributed to several factors.
Speaker Change: Namely, a $10 million increase in deal and integration costs associated with the pending Blue Halo acquisition, an increase of $5.9 million in SG&A expenses, including Intentional Ammonization, and a $4 million decrease in gross margin.
Speaker Change: These were partially offset by a $2 million decrease in investments in R&D and a $1.9 million decrease in tax expense.
Speaker Change: Slide 11 shows a reconciliation of gap and adjusted or non-GAAP those are the EPS. The company posted adjusted earnings per share of 30 cents for the third quarter of fiscal 2025 versus 63 cents for those who share for the third quarter of fiscal 2024.
Speaker Change: Turning to our balance sheet, at the close of the third quarter, our total cash and investments amounted to 72.5 million compared to 91.9 million at the end of the second quarter of fiscal 2025. Unbilled receivables increased 25 million during the third quarter.
Speaker Change: The elevated amount of unbuilt receivables is largely attributable to the transition of the LMS progress billings.
which has taken longer than expected.
Speaker Change: but is moving forward, so we expect a significant reduction in unbuilding Q4. In fact, we started receiving the LMS as progress billing payments this quarter.
Speaker Change: We have access to a $200 million revolving credit facility which we drew $25 million on the revolver at the end of Q3.
Speaker Change: I'd like to conclude with some highlights of our backlog metrics. Our funded backlog at the 3rd quarter of fiscal 2025 finished at a record $763.5 million.
Speaker Change: Approximately $13 million of the backlog relates to contracts we recently received to stop work order on.
Speaker Change: However, we now have 100% visibility to the midpoint of our revised lower guidance range for physical 2025. We expect bookings for the year to exceed $1 billion and position us for strong organic revenue growth and FY26. Now I'd like to turn things back to Wahid.
Thanks, Kevin.
Speaker Change: Given our third quarter performance in recent developments, we have lowered and narrowed our full fiscal year guidance.
Speaker Change: For fiscal year 2025, we now expect revenues of $780 million to $795 million.
Adjusted EBITDA of $135 million to $142 million [inaudible]
and non-GAAP earnings of $2.92 to $3.13 per share.
Speaker Change: We also expect R&D expenses of 12% to 13% of revenues, and adjusted gross margins of 40% to 41% for the full fiscal year.
Speaker Change: Before turning the call over for questions, let me summarize the key takeaways from today's call.
Speaker Change: First, we won large awards tied to key long-term strategic programs, growing our backlog to a record $764 million.
Speaker Change: Second, we continue to make discipline investments to reinforce our market leadership, expanding our capabilities, and support our growth.
Speaker Change: Third, High Winds and Fires in Los Angeles area, and factored our third quarter financial performance, creating short-term operational challenges.
Speaker Change: And fourth, we have lowered our fiscal year 2025 guidance, but remain on track for another record fourth quarter revenue with accelerating growth in fiscal year 2026.
Speaker Change: At the start of this call, I highlighted the significant progress we made this quarter.
Speaker Change: AV is not just responding to the evolution of modern warfare, we are driving this transformation in our industry.
Speaker Change: The world is now recognizing what we have long believed that autonomous AI-enabled drones and loitering munitions will be much more widely adopted as they transform defense strategy.
Speaker Change: These are categories we pioneer and that we continue to lead on a global scale.
Speaker Change: We're also encouraged by the momentum within the new administration which has prioritized the rapid fielding of AI-driven autonomous systems.
Speaker Change: A vision that align seamlessly with AV's capabilities, expertise, and industry leadership.
Speaker Change: With battle-driven technology, the largest global installed base, an unmatched production capacity.
Speaker Change: AV is not just prepared to meet the disdistimand, we are defining the future of modern warfare.
This is our mission. This is why we exist.
Speaker Change: Our employees come to work every day driven by the belief that what we do truly matters.
Speaker Change: I want to personally thank our employees, shareholders and customers for their commitment to delivering cutting-edge solutions that protect our nation and its allies.
Speaker Change: We are honored to support the most critical defense missions at this pivotal moment.
Speaker Change: And with that, Kevin, Jonah and I will now take your questions and I will take your questions.
Speaker Change: Thank you. As a reminder to ask a question, please press star 11 on your telephone and wait for your name to be announced
Speaker Change: And our first question will come from the line of Greg Konrad with Jeffries. Your line is open.
Good evening.
Greg Conrad: I just used the fiscal year 26th a bit in the script. I mean, if we look at guidance
Greg Conrad: You know, it implies the exit rate run rate of sales of like 240 million in Q4, you know, how are you thinking about the bridge to fiscal year 26 given the backlog and some of your commentary around Ukraine?
Accelerating Growth and Profitable Growth Year for Physical 26.
As you mentioned,
Our backlog is at unprecedented levels, record levels [inaudible]
Greg Conrad: Close to $750 million, number one, number two, we're going to exit Q4, roughly about $240 to $250 million in revenue.
Greg Conrad: which is again going to be a significant quarter for us, a very large quarter, that positions us to nearly a billion dollar a year next year.
Speaker Change: while there are still some uncertainties related to the current administration's decisions.
Speaker Change: and what we feel very confident, the demand for our systems across the world is growing.
We have an incredibly strong backlog [inaudible]
Speaker Change: We have a growing pipeline of opportunities. The administration is incredibly positive towards the categories that we play and we lead the market globally. And the world is still a very
sort of unsafe place.
Speaker Change: There are lots of conflicts around the globe and our solutions are performed and delivered exceptionally well during the conflicts of Ukraine.
Speaker Change: and so I really believe that next year is going to be another record year for us with Accelerating Growth.
Speaker Change: and our pipeline supports nearly a billion dollar business for us next year, organically alone. And of course, when you couple that with Blue Halo acquisition, which brings significant new capability to our portfolio, as long as that goes through, which we expect it to happen, sometimes in the next quarter, then we're going to be very much in great position.
Globally.
Thank you.
It seems like there's some acceleration for that business.
Speaker Change: next year. Without getting into specifics, just thinking about the deal closing in Q2. What are some of the areas that you're most excited for in terms of a blue halo growth into next year after the deal closes?
Speaker Change: Well, Greg clearly the blue halo acquisition is going to transform AV in the industry that we're leading already. It is unprecedented in our industry.
for two companies and two businesses to come together.
that has nearly no overlap. [inaudible]
Speaker Change: and is incredibly complimentary in order to achieve what we refer to our future state to be able to deliver to our customers.
An Integrated Portfolio of Robotic Systems
Speaker Change: that are connected with each other, integrated, interoperable, and enabled with AI, autonomy and computer vision. The areas that were very, very, um,
are excited about. Number one is their counter UIS business.
Are the leading player in that market?
including capabilities and lasers.
and directed energy.
Speaker Change: for Counter-UAS and a layered approach to that. So that's one area, another area of focus and excitement also is their space communication. They have won a billion dollar plus program with the U.S. Department of Defense, Air Force and Space Force.
Speaker Change: to Overhaul and Upgrade US Satellite, Military Satellite Communications. So, those two by itself, but also in the cyber and intelligence community, they're a leading player with most advanced capabilities in that area. And so, there's lots of different areas, but those three areas really stand out as incredibly complimentary to what we do and potential high-grotes for the combined entities.
Speaker Change: Let's not also forget that the combined entity will be incredibly well positioned with market leading growth .
Speaker Change: Revenue and profitability that's sustainable and it has the track record to be continued to deliver to the market so we're very excited about that beyond our own organic growth opportunities.
Thank you.
Thank you. One moment for our next question.
Speaker Change: And that will come from the line of Peter Arment with Baird, your line is open.
Peter Arment: Good afternoon, Wahid and Kevin, Jonah. Hey, Wahid, could you give us a little more color on the on the work stop as you mentioned, it's for FMS contracts. What were the reasons for that, and is this something that is going to linger into Q4 or beyond?
Wahid Nawabi: Yes, Peter. So great question, as I mentioned in my remarks. Just this week, yesterday, I believe we received information from the US Department of Defense.
Wahid Nawabi: that specific contracts, that is roughly about $13 million in value, these are foreign military sales contracts that we have already secured and we were in the process of actually delivering those in the fourth quarter, majority of that, has been, we've been asked to stop work on those particular contracts.
Wahid Nawabi: Guess what would be, and my personal view would be that I do not believe that these countries are going to stay without these capabilities.
Wahid Nawabi: There is a serious, real need for our capabilities for these customers, international allies.
Wahid Nawabi: and US is obviously using this to reassess its priorities and reassess things.
Wahid Nawabi: So we have removed that from our outlook for fourth quarter and that obviously affects our fourth quarter results which we have lowered our guidance accordingly.
and regardless of that,
Our ability to grow next year despite
Wahid Nawabi: is very, very good. We believe that next year is going to be a very strong growth year.
Wahid Nawabi: We have never been in such a great position, in my view, as a company, to have the backlog that we have, the demand drivers that are out there, and the focus of the USUD in terms of the autonomous.
Wahid Nawabi: Drones and loitering munitions that we are the leader in the board. So that's the extent of it as the situation Evolves which is very fluid today will keep you updated
Speaker Change: Okay, and then you just as a follow up, you mentioned the 500 million plus kind of revenue, you know, kind of run rate, you know, opportunity and the LMS, but you talked about, you know, 26 being, you know, basically on a run rate path to get close to a billion dollars, which implies that
Speaker Change: You know, the uncrewed segment would be, you know, kind of
Speaker Change: Seeing a significant step up in volume, I mean, I know this is the trough of this quarter, it's 64 million, you expect things
Speaker Change: who jumped 20 volumes to pick up in the fourth quarter. But it implies basically that there's going to be a pretty healthy step up in uncrewed. Could you maybe talk about the demand environment that gives us more confidence around the uncrewed backdrop. You know what I'm talking about?
Peter Arment: Absolutely, Peter, so overall, we feel very confident about our uncrewed systems business in general. There are several
Peter Arment: Strong drivers for demand for that business to grow over the next several years.
Peter Arment: Specifically, weren't you using new capabilities or investing in new generation of solutions, including the P550?
Peter Arment: which the USDUDs already announced at least one or two programs each worth a billion dollar plus in value. One of those, for example, is the long-range reconnaissance program. So over the next three to five years, we expect
Peter Arment: or a U-XS business to continue to grow in terms of adoption as well as top line revenue and we expect it to be a significant driver of profitability and revenue for the company.
Peter Arment: Regardless of that, Fiscal Year 25 has been really a transition year for us. We proactively
Transitioned ourselves, Intivided Away from the fiscal 25.
Peter Arment: Spike will be received in demand from Ukraine, primarily for Puma and Switchblade systems.
As I said on the remarks,
Peter Arment: That represented 38% of our revenue. Ukraine did last fiscal year. This year it's going to be around 17% and in the fourth quarter it'll be about 6% of our total revenue expected from Ukraine. So essentially we have completely pivoted away from the Ukraine demand.
Peter Arment: And despite all that, we have an unprecedented historic backlog that allows us to grow next year. So we expect Lloyd Munitions to lead that growth, but the UXX also will grow, and so would our McLeity will accept.
Appreciate it. Thanks, Wade.
You all, Peter.
Thank you, one moment for our next question.
Speaker Change: And that will come from the line of Louis DiPalma with William Blair. Your line is open.
Wahid, Kevin, and Jonah. Good afternoon.
Hey man, how you doing?
Um...
Speaker Change: A billion dollars in revenue for fiscal 2026. I was wondering, are you also...
Speaker Change: Confident in Blue Halo, generating close to a billion dollars for fiscal 2026, I think there was.
Speaker Change: that projection in the S4 filing that just came out, but I was wondering just how current are the projections from that S4? Thanks.
Speaker Change: Sure, so Louie, obviously we feel very compelled for A.V. organically.
Speaker Change: I truly believe that we've never been in such a strong position, even compared to last fiscal year. Our backlog
Speaker Change: as a percentage of revenue and also our backlog as a total amount is unprecedented.
Speaker Change: It sets us up for a very strong fiscal 26 sort of performance.
and the demand for systems continue to increase.
Speaker Change: And I believe that the new administration's focus on the priorities that they have publicly stated is going to support our growth even more.
Speaker Change: In terms of Blue Halo, we have already published specific forecast that has been developed internally by Blue Halo and has been vetted and also verified by third party experts, including ourselves
Speaker Change: That's part of the S4. I encourage you to further those and look at those.
Speaker Change: They are absolutely growing business, very complimentary TAV, and we expect that to continue going beyond this fiscal year, and so while the closing is not guaranteed yet.
Speaker Change: And it's not done yet. We feel strongly that the two the combination of two businesses is going to be fantastic for the market. We're going to be unparalleled in terms of our offering in the market and incredibly well positioned.
Speaker Change: to benefit from the priorities of the current administration and the conflicts and the threats that are around the globe worldwide. So I feel very bullish about that and I think it's going to be very, very positive long-term prayer of Arment. And we'll do the combined guidance when we do year end results. That's right.
Speaker Change: Great. Thanks, Wahid and Kevin. And on the last quarter earnings call, you mentioned that you were close to closing two different jump 20 orders and you formally announced one of the orders. Did you close the second order or is that still still pending?
Speaker Change: It's a great question. You're absolutely correct that we said to last quarter and were pleased to report this quarter that we have announced one of them, which was the
Speaker Change: The $181 million contract value source IDIQ for the next 10 years.
Speaker Change: with the Danish military. The second one, competitive bit. It was a very competitive bit. As Kevin mentioned, that was an incredibly competitive bit. It basically highlights that jump 20 is
Speaker Change: The leading solution in the market, best in class solution in the market, and that competition actually was protested. [inaudible]
and protest that again and we eventually prevailed. Regardless...
Speaker Change: We are actively working the second one. We expect that announcement to come in sometimes in the fourth quarter. Obviously the timing of those are in the hands of our customer. Thank you very much.
Speaker Change: But we believe that we're positioned very well. It is also a large program.
Speaker Change: that we're going to be unseeding another competitor hopefully and we'll keep you updated and we feel very strong and very positive about our position on that and we expect that to be decided and announced sometimes either Q4 beginning of a first quarter of fiscal 26 26.
Speaker Change: Great, and one final one, regarding the Army Stop Work Order, you indicated that it was for foreign military
Speaker Change: I believe that it's for multiple countries, but does this relate to multiple countries using their own funds?
Speaker Change: to buy either the switchblade or the Puma or one of your other systems and the US Army is
Speaker Change: Alonso, countries are allies from using their own funds to buy AeroVironment systems.
Luis: Louis, great question. So the stop-work that we received just yesterday.
Luis: is specific to a particular contract that is under the FMS Foreign Military Sales Contracts with US Army and AeroVironment.
for a specific country around the world.
Luis: I'm not in the position to be able to disclose the specific countries however the total of it roughly adds up to about 13 million dollars in bookings that we have in our backlog. Thank you very much.
majority of which we were expecting to ship in Q4.
Luis: The future of that is undetermined. We don't exactly know whether this is a temporary hold.
Luis: We do know that the USDUD, as well as the current administration, is using all of these tools at its position to negotiate terms and negotiate various positions with these countries. [inaudible]
Luis: Most of these deals are also foreign military funded which means that the orders, the funding for these contracts actually are provided by the US government through an FMS process.
Luis: and therefore USDUD's re-evaluating whether they should proceed or not in each case.
Luis: It is undetermined at this point as to what the outcome would be and how long would that last
Speaker Change: All sorts of possibilities are probable, in my view, and we don't know. What I do know that these countries desperately need these capabilities. Number one, number two, our solutions are quite affordable.
Speaker Change: And so there is also a possibility that if these countries do not get US funding for these acquisitions that they may come up with their own funding which many countries do already anyways.
Speaker Change: And so we felt compelled enough to share that information as it comes up and let you know.
Speaker Change: Regardless of all that, we feel very strong about our business, we feel very strong about our backlog.
Speaker Change: And we believe that we're going to have another growth year. We're going to be able to execute our Q4. The administration's position is really, really changing and evolving and fluid and we'll keep you updated as we go forward.
Great, thanks
Speaker Change: Thank you. Thank you, Louis. As a reminder, if you have a question, please press star 11.
Speaker Change: Wahid, Kevin, Jonah. Thanks so much for taking the question. You know, on the topic of international sales, you mentioned last quarter, there were an incremental six nations that were in different phases of the acquisition process. Can you maybe give an update on those and how negotiations are trending?
Speaker Change: Sure, so Andre, as I mentioned on my remarks, we have now received firm orders.
for approximately six of those countries.
Speaker Change: In our backlog and we expect to ship those sometimes throughout the next few months and next year. And then in addition to that, there is an additional 20 countries that we're actively engaged with.
and the list of these countries continue to grow.
Speaker Change: And let's not forget that almost every one of these countries is going to be in this country.
Speaker Change: These are their first time buys, which means that as they buy these systems [inaudible]
Speaker Change: They will use some of them to train their forces and also inform their usage and their force structure deployment which eventually will lead to more adoption.
So, I truly believe that ours [inaudible]
Speaker Change: Lloyd Munition Business is looking at a very large, long-term growth.
Speaker Change: and Adoption Opportunity here with our allies for Switch Blades. Switch Blades performance and the conflite inquiry crane has absolutely validated this capability.
We are leading the industry.
We have a significant advantage in terms of our-
Ability to deliver and volume and produce these in volume and that's why we continue to expand capacity we've already
Speaker Change: Increased capacity significantly, but with the new facility, we're going to increase our footprint by 5x again
Speaker Change: and that facility is going to come online sometimes next, this calendar year towards the end of this calendar year, which again, it's all indicators that we strongly believe in the growth of this business, not only now or next year but beyond next year.
Speaker Change: And so we truly believe that this is a billion dollar franchise that we're growing very aggressively over the next several years. And again, all of our businesses are growing and we'll grow next year, but LMS is obviously leading the pack and it's growing in size considerably.
Speaker Change: God, thank you, we heat it. And then I guess maybe if I pivot away from that, I mean, you know, kind of revisiting the wildfires. Could you quantify exactly how much of the negative impact in 3Q was attributable to the South Carolina California fires?
Speaker Change: Sure, so Andre, I won't be able to get into this specifics because there's lots of different details and complexities to it, but remember these were unprecedented levels of fires as well as wins. So, what happened as a result of these extremely high wins?
The Utility, The Local Utilities, Essentially
Forced shutdowns were long and extended periods of time of time.
Speaker Change: Many weeks we were losing power day in and day out on multiple of our sites in some cases almost all of our sites here in Southern California
Speaker Change: Not only are our sites were affected in terms of power outages, so were our employee base and our supplier base too, there are local So all of that would happen in a time period which was towards middle to end of our third quarter which does not give us enough time to recover all the plans that we had
So we've made this adjustments.
Speaker Change: We're very pleased with our results still. We continue to grow as a company. It's going to be another record fourth quarter revenues and profitability for the year for us.
Speaker Change: and we're going to exit the year with a strong, strong performance setting us up for next year and I think that our company has not been at such a great position compared to even last year this time looking beyond fiscal 25 into 26. So we're excited about the future and we look forward to that.
Speaker Change: Awesome. We're here. Thanks so much. I'll jump back in the queue.
Thank you, Andre.
Speaker Change: Thank you. I'm showing no further questions in the queue at this time. I would now like to turn the call back over to Jonah for any closing remarks.
Jonah Teeter-Balin: Great. Thank you once again for joining today's conference call and for your interest in AeroVironment. As a reminder, an archive version of this call, SEC, filings and relevant news can be found under the investor section of our website.
Jonah Teeter-Balin: We hope you have a good evening and look forward to speaking with you again following next quarter's results. Good evening.
Jonah Teeter-Balin: This concludes today's program. Thank you all for participating. You may now disconnect.