Q1 2027 AeroVironment Inc Earnings Call

September 9, 2026

Operator: Good day, and thank you for standing by. Welcome to the AeroVironment first quarter fiscal year 2027 earnings call. At this time, all participants are in listen-only mode. After the speakers' presentation, we will open up for questions. To ask a question during the session, you will need to press star 11 on your telephone. You will then hear an automated message advising your hand is raised. To withdraw your question, please press star 11 again. Please be advised that today's call is being recorded. I would now like to hand it over to our first speaker, Denise Pacione, Head of Investor Relations. Please go ahead.

Speaker #1: After this speaker's presentation, we'll open up for questions. To ask a question during the session, you will need to press star 11 on your telephone.

Speaker #1: You will then hear an automated message advising your hand is raised. To withdraw your question, please press star 11 again. Please be advised that today's call is being recorded.

Speaker #1: I would now like to hand it over to our first speaker, Denise Pacioni, Head of Investor Relations. Please go ahead.

Speaker #2: Thank you, and good afternoon, ladies and gentlemen. Welcome to AV's first quarter fiscal year 2027 earnings call. My name is Denise Pacioni, Head of Investor Relations for AV.

Denise Pacioni: Thank you, and good afternoon, ladies and gentlemen. Welcome to AV's first quarter fiscal year 2027 earnings call. My name is Denise Pacione, Head of Investor Relations for AV. Before we begin, please note that certain information presented on this call contains forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. These statements involve many risks and uncertainties that could cause actual results to differ materially from our expectations. Further information on these risks and uncertainties is contained in the company's 10K and other filings with the SEC, in particular in the risk factors and forward-looking statement portions of such filings. Copies are available from the SEC or on the AeroVironment website, www.avinc.com, or from our investor relations team.

Speaker #2: Before we begin, please note that certain information presented on this call contains forward-looking statements within the meaning of the private securities litigation reform act of 1995.

Speaker #2: These statements involve many risks and uncertainties that could cause actual results to differ materially from our expectations. Further information on these risks and uncertainties is contained in the company's 10-K and other filings with the SEC, in particular in the risk factors and forward-looking statement portions of such filings.

Speaker #2: Copies are available from the SEC or on the AeroVironment website, www.avinc.com, or from our investor relations team. 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.

Denise Pacioni: 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. The content of this conference call contains time-sensitive information that is accurate only as of today, 9 September 2026. The company undertakes no obligation to update any forward-looking statements, whether as a result of new information, future events, or otherwise. Joining me today from AV are Chairman, President, and Chief Executive Officer, Mr. Wahid Nawabi, and Executive Vice President and Chief Financial Officer, Mr. Sean Woodward. We will now begin with remarks from Wahid Nawabi. Wahid?

Speaker #2: The content of this conference call contains time-sensitive information that is accurate only as of today, September 9, 2026. The company undertakes no obligation to update any forward-looking statements, whether as a result of new information, future events, or otherwise.

Speaker #2: Joining me today from AV are Chairman, President and Chief Executive Officer Mr. Wahid Nawabi, and Executive Vice President and Chief Financial Officer Mr. Sean Woodward. We will now begin with remarks from Wahid Nawabi.

Speaker #2: Wahid?

Speaker #3: Thank you, Denise. Welcome, everyone, to our first quarter fiscal year 2027 earnings conference call. I will begin today's call by summarizing our quarterly performance, followed by Sean, who will review our financial results in greater detail.

Wahid Nawabi: Thank you, Denise. Welcome, everyone, to our first quarter fiscal year 2027 earnings conference call. I will begin today's call by summarizing our quarterly performance, followed by Sean, who will review our financial results in greater detail. After this, Sean, Denise, and I will take your questions. I am pleased to report excellent first quarter results across several key financial performance metrics that meet or exceeded our expectations. AV reported first quarter revenues of $480 million, with record-setting funded backlog of $1.5 billion, as well as adjusted EBITDA of nearly $46 million and bookings of $683 million. These results reflect our focus on capturing key growth opportunities and our ability to execute with excellence. Building on our success from fiscal year 2026, we believe our first quarter results have positioned us well to deliver an even greater and stronger fiscal year 2027.

Speaker #3: After this, Sean, Denise, and I will take your questions. I'm pleased to report excellent first quarter results across several key financial performance metrics, that meet or exceeded our expectations.

Speaker #3: AV reported first quarter revenues of $480 million, with record-setting funded backlog of $1.5 billion. As well as adjusted EBITDA of nearly $46 million, and bookings of $683 million.

Speaker #3: These results reflect our focus on capturing key growth opportunities, and our ability to execute with excellence. Building on our success from fiscal year 2026, we believe our first quarter results have positioned us well to deliver an even greater and stronger fiscal year 2027.

Speaker #3: Before discussing the details of our strong results, let me first highlight some key achievements from the first quarter. First, we want several key contracts on franchise programs during the quarter that contributed to $683 million in bookings.

Wahid Nawabi: Before discussing the details of our strong results, let me first highlight some key achievements from the Q1. First, we won several key contracts on franchise programs during the quarter that contributed to $683 million in bookings. These wins add to a strong bookings pipeline for both this fiscal year and beyond. Second, our funded backlog grew to a record $1.5 billion, which is 37% higher than the same period last year. Third, we achieved record Q1 revenue of $480 million. Fourth, we continue to advance our manufacturing capacity expansion plans across several of our platforms and products to support our strong growth over the next several years.

Speaker #3: These wins add to a strong bookings pipeline for both this fiscal year and beyond. Second, our funded backlog grew to a record $1.5 billion, which is 37% higher than the same period last year.

Speaker #3: Third, we achieved record first quarter revenue of $480 million, and fourth, we continue to advance our manufacturing capacity expansion plans across several of our platforms and products to support our strong growth over the next several years.

Speaker #3: With a strong quarter behind us and positive momentum carrying us into the second quarter, we are reaffirming our fiscal year 2027 revenue guidance of between $2.125 billion and $2.225 billion.

Wahid Nawabi: With a strong quarter behind us and positive momentum carrying us into the Q2, we are reaffirming our fiscal year 2027 revenue guidance of between $2.125 billion and $2.225 billion, and adjusted EBITDA guidance for fiscal year 2027 of between $305 million and $325 million. Both of our business segments are progressing well toward their fiscal year 2027 growth goals, supported by key domestic and international program wins and increased backlog and revenue contributions. During the Q1, our Autonomous Systems segment contributed $346 million, or 72% of the total company revenue. Our Space, Cyber and Directed Energy segment contributed $134.5 million in revenue, or 28% of the total company revenue, consistent with our plans for the quarter. Both segments contributed to the 25% increase in funded backlog from the prior quarter due to very strong order flow and several source wins.

Speaker #3: And adjusted EBITDA guidance for fiscal year 2027 of between $305 million and $325 million. Both of our business segments are progressing well toward their fiscal year 2027 growth goals, supported by key domestic and international program wins, and increased backlog and revenue contributions.

Speaker #3: During the first quarter, our Autonomous Systems segment contributed $346 million, or 72% of total company revenue. Meanwhile, our Space, Cyber, and Directed Energy segment contributed $134.5 million in revenue, or 28% of total company revenue, consistent with our plans for the quarter.

Speaker #3: Both segments contributed to the $25% increase in funded backlog from the prior quarter, due to very strong order flow and several sole-source wins. Our total funded backlog now stands at $1.5 billion.

Wahid Nawabi: Our total funded backlog now stands at $1.5 billion. Strong contract wins across multiple programs in both segments, particularly in counter-UAS, positions us for a record fiscal year 2027 and supports our progress towards long-term growth goals. I would like to now walk you through some significant achievements since our last earnings call in each of our four main product areas, which are multi-mission ISR, Precision Strike, counter-UAS, and Space and Advanced Technologies. Starting first with our multi-mission ISR product area. As we had mentioned on our last call, AV's P550 was selected for the US Army's Long-Range Reconnaissance program at the beginning of the Q1 with an award of $117 million. Successful integration into the US Army's Next Generation Command and Control System, or NGC2, and strong performance during recent field tests positioned the P550 as another key franchise program expected to drive future growth.

Speaker #3: Strong contract wins across multiple programs in both segments, particularly in Counter UAS, position us for a record fiscal year 2027 and support our progress towards long-term growth goals.

Speaker #3: I would now like to walk you through some significant achievements since our last earnings call in each of our four main product areas, which are: multi-mission ISR, precision strike, counter-UAS, and space and advanced technologies.

Speaker #3: Starting first with our multi-mission ISR product area. As we mentioned on our last call, AV's P550 was selected for the U.S. Army's long-range reconnaissance program at the beginning of the first quarter, with an award of $117 million.

Speaker #3: Successful integration into the U.S. Army's Next-Generation Command and Control system, or NGC2, and strong performance during recent field tests positioned the P550 as another key franchise program expected to drive future growth.

Speaker #3: We anticipate the LRR program to be a $1 billion program over the next few years. Also during the quarter, AV was awarded a $30 million contract to deliver Puma AE and Puma LE systems for Germany's LARUS airborne reconnaissance program.

Wahid Nawabi: We anticipate the LRR program to be a $1 billion program over the next few years. Also during the quarter, AV was awarded a $30 million contract to deliver Puma AE and Puma LE systems for Germany's Larus airborne reconnaissance program. This award represents one of the most significant European Puma procurements to date. In addition to these wins from our small UAS product line, our JUMP 20 and JUMP 20-X continue to make headway in AV's Group 3 or medium UAS offering. For example, our JUMP 20 recently received an MQ-31A military designation from the Italian Ministry of Defence formally recognizing AV JUMP 20 as an official military capability. This is a critical next step in the procurement process, enabling the Italian army to accept deliveries of JUMP 20 and recognizing it as an element of its formal military inventory.

Speaker #3: This award represents one of the most significant European Puma procurements to date. In addition to these wins from our small UAS product line, our Jump 20 and Jump 20X continue to make headways in AV's Group 3, or medium UAS offering.

Speaker #3: For example, our JUMP 20 recently received an MQ-31A military designation from the Italian Ministry of Defense, formally recognizing AV's JUMP 20 as an official military capability.

Speaker #3: This is a critical next step in the procurement process, enabling the Italian Army to accept deliveries of Jump 20 and recognizing it as an element of its formal military inventory.

Speaker #3: With this recent announcement, Jump 20 and Jump 20X have now won several international programs of the record, just over the last 12 months alone.

Wahid Nawabi: With this recent announcement, JUMP 20 and JUMP 20-X have now won several international programs of record just over the last 12 months alone. Turning now to Precision Strike. We continue to see progress and momentum across several of our platforms within Precision Strike. Our comprehensive family of one-way attack, loitering munitions, and launched effects products has the ability to meet our customers' immediate needs while remaining adaptable to future requirements. Our recent Switchblade 400 award under the US Army's Low Altitude Stalking and Strike Ordnance, or LASSO program, is an example of AV's ability to quickly adapt our proven capabilities to meet new customer program requirements. Leveraging capabilities from both the Switchblade 300 and 600, AV Switchblade 400 is now a key solution set within the US Army's LASSO program.

Speaker #3: Turning now to precision strike. We continue to see progress and momentum across several of our platforms within precision strike. Our comprehensive family of one-way attack, loitering munitions, and launch defects products immediate needs while remaining adaptable to future requirements.

Speaker #3: Our recent Switchblade 400 award under the U.S. Army's Low-Altitude Stalking and Strike Ordnance, or LASSO, program is an example of AV's ability to quickly adapt our proven capabilities to meet new customer program requirements.

Speaker #3: Leveraging capabilities from both the Switchblade 300 and 600, AV's Switchblade 400 is now a key solution set within the U.S. Army's LASSO program. Also during the quarter, AV received a $51 million U.S.

Wahid Nawabi: Also, during the quarter, AV received a $51 million US Army contract for Switchblade 600 in support of a lethal unmanned systems IDIQ. Taken together, these two awards position AV as a long-term partner to the US Army. With 20-plus brigade combat teams and 180-plus soldiers trained, these awards also reflect the US Army's confidence in our solutions and our ability to deliver mission-critical capabilities at speed. Looking ahead, we are also seeing strong demand signals for our one-way attack solution, Red Dragon, and increased international demand in loitering munitions. Turning now to our counter-UAS portfolio. We are extremely excited about the progress we have made this past quarter with our multilayered counter-UAS defensive systems. Both Titan and LOCUST systems received several awards this past quarter, which are strategic to the long-term growth of these franchise products.

Speaker #3: Army contract for Switchblade 600s in support of a lethal unmanned systems IDIQ. Taken together, these two awards position AV as a long-term partner to the U.S.

Speaker #3: Army. With 20-plus brigade combat teams and 180-plus soldiers trained, these awards also reflect the U.S. Army's confidence in our solutions and our ability to deliver mission-critical capabilities at speed.

Speaker #3: Looking ahead, we are also seeing strong demand signals for our one-way attack solution, Red Dragon, and increased international demand in loitering munitions. Turning now to our counter-UAS portfolio.

Speaker #3: We're extremely excited about the progress we've made this past quarter with our multi-layered counter-UAS defensive systems. Both Titan and Locus systems received several awards this past quarter, which are strategic to the long-term growth of these franchise products.

Speaker #3: Just recently, we announced two significant wins for our market-leading counter-UAS directed energy platform, called LOCUST. As you recall, AV was awarded a landmark contract valued at nearly $465 million.

Wahid Nawabi: Just recently, we announced two significant wins for our market-leading counter-UAS directed energy platform called LOCUST. As you recall, AV was awarded a landmark contract valued at nearly $465 million for the US Army's Enduring-High Energy Laser, or E-HEL program in late August. This award represents the first ever production contract for direct energy systems in the US military's history. This is a defining moment, not only for our company, but also for our customers, our country, and the advancements of laser weapons technology as a critical tool in modern warfare. Following this announcement, we also announced our first international order for our LOCUST directed energy counter-UAS laser weapon system as a direct commercial sale. This order underscores the growing global demand for scaled high energy laser weapon systems.

Speaker #3: for the U.S. Army's Enduring High-Energy Laser, or EHEL, program in late August. This award represents the first-ever production contract for directed energy systems in the U.S.

Speaker #3: military's history. This is a defining moment not only for our company, but also for our customers, our country, and the advancement of laser weapons technology as a critical tool in modern warfare.

Speaker #3: Following this announcement, we also announced our first international order for our Locus directed energy counter UAS laser weapon system, as a direct commercial sale.

Speaker #3: This order underscores the growing global demand for scaled high-energy laser weapon systems. As global threats continue to evolve, and as asymmetric economics persist on the modern battlefield, directed energy has emerged as an increasingly important, cost-effective solution for countering high-volume, low-cost drone attacks.

Wahid Nawabi: As global threats continue to evolve and as asymmetric economics persist on the modern battlefield, directed energy has emerged as an increasingly important, cost-effective solution for countering high volume, low-cost drone attacks. At under $10 per shot, LOCUST redefines the cost balance between offensive and defensive systems and provides the war fighter with an essentially unlimited magazine. We see these landmark awards as demonstrating the growing demand for LOCUST, both in the United States and internationally, and positions AV as a leader for the rapidly expanding directed energy market. Building our momentum from these awards, we anticipate a growing pipeline of opportunities for our LOCUST laser weapon systems, both domestically and abroad, and look forward to sharing additional award progress with you in the coming quarters.

Speaker #3: On under $10 per shot, Locus redefines the cost balance between offensive and defensive systems and provides the warfighter with an essentially unlimited magazine. We see these landmark awards as demonstrating the growing demand for Locus, both in the United States and internationally, and positions AV as a leader for the rapidly expanding directed energy market.

Speaker #3: Building our momentum from these awards, we anticipate a growing pipeline of opportunities for our Locus laser weapon systems, both domestically and abroad, and look forward to sharing additional award progress with you in the coming quarters.

Speaker #3: In addition to these historic achievements with directed energy and counter-UAS, we also announced earlier in the quarter a major contract win for our RF Detect and Defeat platform, called Titan.

Wahid Nawabi: In addition to these historic achievements with directed energy counter-UAS, we also announced earlier in the quarter a major contract win for our RF detect and defeat platform called Titan. Our Titan MS was awarded a sole source $500 million IDIQ in support of Joint Interagency Task Force 401 Domestic Shield Program, which included an initial $80 million contract in support of the United States Golden Dome initiative. Our Titan series of RF jammers continue to be a market-leading solution in the world and a strong growth driver for the company. We anticipate the use cases for its capabilities to continue to expand beyond traditional military applications.

Speaker #3: Our Titan MS was awarded a sole-source $500 million IDIQ in support of joint interagency task force 401, domestic shield program, which included an initial $80 million contract in support of the United States Golden Dome Initiative.

Speaker #3: Our Titan series of RF jammers continues to be a market-leading solution worldwide and a strong growth driver for the company. We anticipate that the use cases for its capabilities will continue to expand beyond traditional military applications.

Speaker #3: In addition to these two counter-UAS program wins, we also announced the expansion of our Huntsville, Alabama, facility in anticipation of additional demand for our Freedom Eagle 1, or FE1, kinetic intercept solution.

Wahid Nawabi: In addition to these two counter-UAS program wins, we also announced the expansion of our Huntsville, Alabama facility in anticipation of additional demand for our Freedom Eagle 1 or FE-1 kinetic intercept solution. Since winning the US Army's Long-Range Kinetic Interceptor, or LRKI program last year, our customer requested an accelerated production schedule. We received additional congressional funding to support this acceleration of production and delivery of products on this program. Our investments in capacity expansion will allow us to rapidly scale FE-1 manufacturing in order to meet the US Army's urgent operational needs. This program is critical in filling critical operational requirements needed by our customers to combat low-cost drone threats. Now let's look at the progress we made in our Space and Advanced Technologies group. AV recently won a $43 million contract to integrate PANTHER phased array antenna on Sky Range platforms for hypersonic telemetry.

Speaker #3: Since winning the U.S. Army's Long-Range Kinetic Intercept, or LRKI, program last year, our customer requested an accelerated production schedule, and we received additional Congressional funding to support this acceleration of production and delivery of products on this program.

Speaker #3: Our investments in capacity expansion will allow us to rapidly scale FE1 manufacturing in order to meet the U.S. Army's urgent operational needs. This program is essential in fulfilling critical operational requirements needed by our customers to combat low-cost drone threats.

Speaker #3: Now let's look at the progress we made in our space and advanced technologies group. AV recently won a $43 million contract to integrate Panther phased array antenna on Sky Range platforms for hypersonic telemetry.

Speaker #3: This contract will enhance the nation's weapons testing capabilities and will help enable more frequent testing cycles and faster weapons development timelines especially related to hypersonic weapons.

Wahid Nawabi: This contract will enhance the nation's weapons testing capabilities and will help enable more frequent testing cycles and faster weapons development timelines, especially related to hypersonic weapons. These combined achievements across all four of our product categories during the first quarter demonstrate the breadth and capabilities of our products and solutions across the defense sector. With several of our products at an inflection point for multi-year sustained growth, we are focused on enhancing operational readiness. As we communicated at our investor day this past July, leading the sector in innovation has been and will continue to be a key priority for AV. The progress we made this past quarter demonstrates how that commitment is translating into meaningful customer wins and key franchise program awards across our diversified portfolio.

Speaker #3: These combined achievements across all four of our product categories during the first quarter demonstrate the breadth and capabilities of our products and solutions across the defense sector.

Speaker #3: With several of our products at an inflection point for multi-year sustained growth, we are focused on enhancing operational readiness. As we communicated at our Investor Day this past July, leading the sector in innovation has been and will continue to be a key priority for AV.

Speaker #3: The progress we made this past quarter demonstrates how that commitment is translating into meaningful customer wins and key franchise program awards across our diversified portfolio.

Speaker #3: As we build on this momentum, we're sharply focused on executing with excellence, increasing capacity, scaling production, and delivering high-quality, battle-proven solutions to our customers.

Wahid Nawabi: As we build on this momentum, we're sharply focused on executing with excellence, increasing capacity, scaling production, and delivering high-quality, battle-proven solutions to our customers. The investments we are making in fiscal year 2027 are designed to support future growth by positioning us to capture additional awards, expanding capacity across key sites, scaling manufacturing with speed and efficiency, and enhancing the resiliency of our supply chain. We are nearly a third of the way into this fiscal year, and we're making significant progress toward achieving these goals. In fact, just after the close of our first quarter, we announced a $100 million long-term investment out of our Southern California facilities to build a new state-of-the-art innovation center and campus. This new facility will consolidate operations and provide additional production capacity.

Speaker #3: The investments we are making in fiscal year 2027 are designed to support future growth by positioning us to capture additional awards, expanding capacity across key sites, scaling manufacturing with speed and efficiency, and enhancing the resiliency of our supply chain.

Speaker #3: We are nearly a third of the way into this fiscal year, and we're making significant progress toward achieving these goals. In fact, just after the close of our first quarter, we announced a $100 million long-term investment out of our Southern California facilities to build a new state-of-the-art innovation center in campus.

Speaker #3: This new facility will consolidate operations and provide additional production capacity. In addition to this investment, we're also progressing on our Salt Lake City facility where we plan to increase loading munitions manufacturing capability.

Wahid Nawabi: In addition to this investment, we are also progressing on our Salt Lake City facility where we plan to increase loitering munitions manufacturing capability. This facility is expected to provide AV with the ability to meet increased demand across our Switchblade product lines well into the future, while also providing additional manufacturing capacity to support other products across our portfolio. This new state-of-the-art campus is on track for a spring of 2027 opening. Earlier in the quarter, we also announced expansion efforts for our Albuquerque, New Mexico facility, where production is starting for our newly awarded LOCUS contracts, along with additional future global demand. This facility is planned to be one of the world's largest and highest volume full-rate manufacturing space for laser weapon systems used for defense applications. As we mentioned earlier, we are also building our Huntsville, Alabama location for our kinetic intercept counter-UAS solution, Freedom Eagle 1.

Speaker #3: This facility is expected to provide AV with the ability to meet increased demand across our Switchblade product lines well into the future, while also providing additional manufacturing capacity to support other products across our portfolio.

Speaker #3: This new, state-of-the-art campus is on track for a spring 2027 opening. Earlier in the quarter, we also announced expansion efforts for our Albuquerque, New Mexico, facility, where production is starting for our newly awarded Locus contracts, along with additional future global demand.

Speaker #3: This facility is planned to be one of the world's largest and highest-volume full-rate manufacturing spaces for laser weapons systems used for defense applications. And as we mentioned earlier, we're also building our Huntsville, Alabama location for our kinetic intercept counter-UAS solution, Freedom Eagle 1.

Speaker #3: These internally funded capacity expansion projects are specifically designed to keep pace with rising demand in both the near and long term. We expect that continued investment in our leading platforms will yield meaningful returns and drive long-term value creation.

Wahid Nawabi: These internally funded capacity expansion projects are specifically designed to keep pace with rising demand in both the near and long term. We expect that continued investment in our leading platforms will yield meaningful returns and drive long-term value creation. Before turning the call over to Sean, let me summarize with the following comments. This past quarter was a great start to our fiscal year 2027. We delivered record first quarter revenues and funded backlog, won several landmark awards on franchise programs domestically and internationally, and expanded production capacity across multiple US facilities. Demand across our portfolio remains robust, and we are focused on executing with discipline as we invest in our business, scaling manufacturing, and strengthening our supply chain to deliver for our customers at the speed their missions require.

Speaker #3: Before turning the call over to Sean, let me summarize with the following comments. This past quarter was a great start to our fiscal year 2027.

Speaker #3: We delivered record first quarter revenues and funded backlog. We won several landmark awards on franchise programs domestically and internationally, and expanded production capacity across multiple U.S.

Speaker #3: Facilities. Demand across our portfolio remains robust, and we're focused on executing with discipline as we invest in our business, scale manufacturing, and strengthen our supply chain to deliver for our customers at the speed their missions require.

Speaker #3: With that, I would like to now turn the call over to first quarter fiscal year 2027 financials. Sean?

Wahid Nawabi: With that, I would like to now turn the call over to Sean Woodward for a review of our first quarter fiscal year 2027 financials. Sean?

Speaker #2: Thank you, Wahid. I will now walk you through our first quarter performance and fiscal year 2027 outlook, referring frequently to our press release and earnings presentation, which are available on our website.

Sean Woodward: Thank you, Wahid. I will now walk you through our first quarter performance and fiscal year 2027 outlook, referring frequently to our press release and earnings presentation available on our website. I am pleased to report a very strong start to fiscal 2027, with first quarter results meeting or exceeding several of our key financial targets. We exceeded our financial targets for the first quarter on revenue, adjusted EBITDA, and non-GAAP EPS, while also achieving positive operating cash flow. We secured solid bookings of $683 million and ended the quarter with record funded backlog of $1.5 billion, up 23% from the prior quarter and higher by 37% from the same period last year. Relatively consistent unfunded backlog at $1.4 billion brought total funded and unfunded backlog at the end of the first quarter to approximately $2.8 billion.

Speaker #2: I am pleased to report a very strong start to fiscal 2027 with first quarter results meeting or exceeding several of our key financial targets.

Speaker #2: We exceeded our financial targets for the first quarter on revenue, adjusted EBITDA, and non-GAAP EPS, while also achieving positive operating cash flow. We secured solid bookings of $683 million and ended the quarter with a record funded backlog of $1.5 billion.

Speaker #2: Up 23% from the prior quarter and higher by 37% from the same period last year. Relatively consistent unfunded backlog at $1.4 billion brought total funded and unfunded backlog at the end of the first quarter to approximately $2.8 billion.

Speaker #2: At the same time, we made significant progress on our capacity expansion initiatives that we expect will allow the company to quickly scale to meet expected increased global demand.

Sean Woodward: At the same time, we made significant progress on our capacity expansion initiatives that we expect will allow the company to quickly scale to meet expected increased global demands. During the quarter, we announced several key capacity expansion efforts directly tied to growth on key franchise programs. First, we purchased and are looking to expand our existing facility in Huntsville, Alabama, to support near-term growth needed for our counter-UAS kinetic intercept solution, Freedom Eagle 1. In addition, we recently announced a $100 million investment at our Southern California campus, where we plan to improve execution on engineering design and development alongside our production operations across multiple platforms. This investment will consolidate multiple existing leased facilities, resulting in expected lower annual operating expenses. We are continuing to make progress on building out production in Albuquerque, New Mexico, for our rapidly growing LOCUS counter-UAS solutions.

Speaker #2: During the quarter, we announced several key capacity expansion efforts directly tied to growth on key franchise programs. First, we purchased and are looking to expand our existing facility in Huntsville, Alabama, to support near-term growth needed for our counter-UAS kinetic intercept solution, Freedom Eagle 1.

Speaker #2: In addition, we recently announced a $100 million investment in our Southern California campus where we plan to improve execution on engineering design and development alongside our production operations across multiple platforms.

Speaker #2: This investment will consolidate multiple existing leased facilities, resulting in expected lower annual operating expenses. We are continuing to make progress on building up production in Albuquerque, New Mexico, for our rapidly growing Locus Counter UAS solutions.

Speaker #2: Besides these three capacity expansion investments, we are getting significantly closer to opening our new, state-of-the-art manufacturing facility in Salt Lake City, Utah. This $120,000-square-foot facility will allow for rapid scaling of our loitering munition products and provide additional space for other products that are facing increased demand.

Sean Woodward: Besides these three capacity expansion investments, we are getting significantly closer to opening our new state-of-the-art manufacturing facility in Salt Lake City, Utah. This 127,000-square-foot facility will allow for rapid scaling of our loitering munition products and provide additional space for other products that are facing increased demand. As discussed in detail at our July investor day, these investments directly support the strong demand we are seeing across our product portfolio. We look forward to sharing further progress on these facility expansions in the coming quarters. Turning now to Q1 results. We secured bookings totaling $683 million in new authorized contract value. Our book-to-bill ratio for Q1 was 1.4 times, reflecting strong demand from large program awards. Our trailing 12-month bookings exceeded $3 billion, representing a book-to-bill ratio of 1.5 times. Total funded and unfunded backlog at the end of Q1 was just over $2.8 billion.

Speaker #2: As discussed in detail at our July Investor Day, these investments directly support the strong demand we're seeing across our product portfolio. We look forward to sharing further progress on these facility expansions in the coming quarters.

Speaker #2: Turning now to first quarter results. We secured bookings totaling $683 million in new authorized contract value. Our book-to-bill ratio for Q1 was 1.4 times, reflecting strong demand from large program awards.

Speaker #2: Our trailing 12-month bookings exceeded $3 billion, representing a book-to-bill ratio of 1.5 times. Total funded and unfunded backlog at the end of the first quarter was just over $2.8 billion.

Speaker #2: Slide 6 of the earnings presentation groups each of our two segments compared to first quarter fiscal year 2026 revenue. The Autonomous Systems, or AXS, segment recognized $346 million in revenue in the quarter.

Sean Woodward: Slide six of the earnings presentation shows the Q1 revenue by operating group for each of our two segments compared to Q1 fiscal year 2026 revenues. The Autonomous Systems, or AXS, segment recognized $346 million in revenue this quarter, which represented a 21% increase over Q1 fiscal year 2026 revenues. The Precision Strike and Defensive Systems operating group generated $197 million in revenue in Q1, which represented an 8% increase over Q1 fiscal year 2026 revenues, driven by our loitering munition family, along with our one-way attack systems and counter-UAS RF Titan products. The Uncrewed Aircraft Systems operating group generated $120 million in revenue in Q1, higher by 71% from the same period last year, led by strong domestic and international sales in P550, JUMP 20-X, and Puma.

Speaker #2: This represented a 21% increase over the first quarter. The Precision Strike and Defensive Systems operating group generated $197 million in revenue in the first quarter.

Speaker #2: which represented an 8% increase over first quarter fiscal year 2026 revenues, driven by our loitering munitions family along with our one-way attack systems and counter-UAS RF Titan products.

Speaker #2: The Uncrewed Aircraft Systems operating group generated $120 million in revenue in the first quarter, up 71% from the same period last year. This was led by strong domestic and international sales in P550, which jumped 20x, and PUMA.

Speaker #2: The space, cyber, and directed energy segment generated $134 million in the quarter one revenue. Down 21% year over year and in line with our expectations.

Sean Woodward: The Space, Cyber and Directed Energy segment generated $134 million in the Q1 revenue, down 21% year over year and in line with our expectations, reflecting the Q1 revenue loss from the SCAR contract termination, which occurred in March of this calendar year, and other discontinued government programs. Within the segment, the Space and Directed Energy operating group sales declined 28% year over year due to discontinued SCAR program. For reference, SCAR-related revenue was $32 million during Q1 of 2026. The Cyber and Mission Solutions revenue declined 16% year over year, primarily due to discontinued government programs. Moving on to gross margins. Slide 12 shows the adjusted product and service gross margin reconciliations to GAAP gross margin. Q1 overall adjusted gross margins of 30% were higher than Q1 2026 results of 29%.

Speaker #2: Reflecting the first quarter revenue loss from the SCAR contract termination, which occurred in March of this calendar year, and other discontinued government programs. Within the segment, the space and directed energy operating group sales declined 28% year over year due to discontinued SCAR program.

Speaker #2: For reference, SCAR-related revenue was $32 million during first quarter 2026. The cyber and mission solutions revenue declined 16% year over year, primarily due to discontinued government programs.

Speaker #2: Moving on to gross margins. Slide 12 shows the adjusted product and service gross margin reconciliations to GAAP gross margin. First quarter overall adjusted gross margins of 30% were higher than first quarter 2026 results of 29%.

Speaker #2: Quarter one adjusted product gross margins was solid at 40% compared to 36% for first quarter 2026. Quarter one adjusted service gross margin was 8%, which was lower than the 13% for first quarter fiscal year 2026.

Sean Woodward: Quarter one adjusted product gross margin was solid at 40% compared to 36% for Q1 2026. Quarter one adjusted service gross margin was 8%, which was lower than the 13% for Q1 fiscal year 2026. The reason for the decline in Q1 service margins was related to our cyber mission solutions business. Specifically, we experienced approximately $5 million in revenue impact from discontinued programs, combined with other program losses and award delays, which made it more challenging to absorb fixed costs. Moving on to operating expenses. Adjusted SG&A, which excludes intangible amortization and deal and integration costs, was $85 million, compared to $65 million in the prior year. The increase was in line with our expectations, driven largely by key investments in infrastructure, along with expanded business development resources to assist in capturing growing global demand.

Speaker #2: The reason for the decline in quarter one service margins was related to our cyber mission solutions business. Specifically, we experienced approximately $5 million in revenue impact from discontinued programs combined with other program losses and award delays, which made it more challenging to absorb fixed costs.

Speaker #2: Moving on to operating expenses. Adjusted SG&A, which excludes intangible amortization and deal and integration costs, was $85 million, compared to $65 million in the prior year.

Speaker #2: The increase was in line with our expectations, driven largely by key investments in infrastructure, along with expanded business development resources to assist in capturing growing global demand.

Speaker #2: Additionally, we incurred increased legal expenses and an unexpected, non-recurring bad debt reserve of $4.2 million in the quarter. As a percentage of revenue, adjusted SG&A in the quarter was 18%, compared to 14% in Q1 of fiscal 2026.

Sean Woodward: Additionally, we incurred increased legal expenses and an unexpected non-recurring bad debt reserve of $4.2 million in the quarter. As a percentage of revenue, adjusted SG&A in the quarter was 18%, compared to 14% in Q1 of fiscal 2026. Full year fiscal 2027 adjusted SG&A is projected to be between 14% and 16% of revenue. Quarter one R&D expense was $24 million, or 5% of revenue, compared to $33 million, or 7%, during the same quarter in the prior year. Full year fiscal 2027 R&D is projected to be between 7% and 9% of revenue, in line with prior guidance. In terms of adjusted EBITDA, slide 13 of our earnings presentation shows the reconciliation of GAAP net income to adjusted EBITDA. Quarter one adjusted EBITDA reached $53 million, or 11% of revenue.

Speaker #2: Full year fiscal 2027, adjusted SG&A is projected to be between $14 and $16% of revenue. Quarter one R&D expense was $24 million or 5% of revenue compared to $33 million or 7% during the same quarter in the prior year.

Speaker #2: Full year fiscal 2027 R&D is projected to be between $7 and 9% of revenue in line with prior guidance. In terms of adjusted EBITDA, slide 13 of our earnings presentation shows the reconciliation of GAAP net income to adjusted EBITDA.

Speaker #2: Quarter one adjusted EBITDA reached $53 million, or 11% of revenue. AXS segment adjusted EBITDA was $62 million for the first quarter of fiscal year 2027, with an 18% adjusted EBITDA margin, reflecting strong revenue and gross margin contributions.

Sean Woodward: AXS segment adjusted EBITDA was $62 million for the first quarter of fiscal year 2027, with an 18% adjusted EBITDA margin, reflecting strong revenue and gross margin contributions. This was partially offset by SCDE segment adjusted EBITDA, which was -$9 million, which was expected, following lower year-over-year revenue and resulting under absorption of fixed costs in both the Space, Cyber and Directed Energy and cyber and mission solutions businesses. Now turning to non-GAAP earnings per share. Slide 11 shows the reconciliation of GAAP and adjusted or non-GAAP diluted EPS. Adjusted EPS reached $0.59 in Q1, up from $0.32 in the prior year quarter, or an 84% year-over-year increase. Moving to the balance sheet. At the close of the first quarter, our total cash and investments amounted to $675 million, a $38 million decrease from the prior quarter.

Speaker #2: This was partially offset by SCDE segment adjusted EBITDA, which was negative $9 million. Which was expected. Following lower year over year revenue and resulting under absorption of fixed costs in both the space and directed energy and cyber and mission solutions businesses.

Speaker #2: Now turning to non-GAAP earnings per share. Slide 11 shows the reconciliation of GAAP and adjusted or non-GAAP diluted EPS. Adjusted EPS reached $59 cents in quarter one up from $32 cents in the prior year quarter or an 84% year over year increase.

Speaker #2: Moving to the balance sheet. At the close of the first quarter, our total cash and investments amounted to $675 million a $38 million decrease from the prior quarter.

Speaker #2: AV total debt composed solely of zero coupon convertible notes was $747.5 million and a net leverage ratio of 1.6 times adjusted EBITDA. The company generated $13 million of positive operating cash flow in the first quarter despite making strategic working capital investments primarily from higher unbilled receivables and inventory.

Sean Woodward: AV total debt, composed solely of zero coupon convertible notes, was $747.5 million, and a net leverage ratio of 1.6x adjusted EBITDA. The company generated $13 million of positive operating cash flow in the first quarter, despite making strategic working capital investments, primarily from higher unbilled receivables and inventory. The increase in inventory is intentional, supported by record-funded backlog and to ensure key critical components with long lead times are secure. As expected, free cash flow was -$36 million in Q1, reflecting higher capital investments to support the expansion of our production facilities. We are still targeting fiscal year 2027 to be negative from a free cash flow perspective, driven by the increased capital expenditures. Now turning to backlog. Funded backlog totaled $1.5 billion at quarter end, which is 37% higher than the first quarter of fiscal year 2026.

Speaker #2: The increase in inventory is intentional, supported by a record funded backlog and to ensure key critical components with long lead times are secured. As expected, free cash flow was negative $36 million in Q1.

Speaker #2: Reflecting higher capital investments to support the expansion of our production facilities, we are still targeting fiscal year 2027 to be negative from a free cash flow perspective, driven by increased capital expenditures.

Speaker #2: Now turning to backlog. Funded backlog totaled $1.5 billion at quarter end, which is 37% higher than the first quarter of fiscal year 2026. Funded backlog composition by segment is $1.1 billion, or 75%, attributable to the AXS segment, and $358 million, or 25%, to the SCDE segment.

Sean Woodward: Funded backlog composition by segment is $1.1 billion or 75% attributable to the AXS segment and $358 million or 25% to the SCDE segment. Unfunded backlog at the end of the Q1 was $1.4 billion, with $1.2 billion or 89% attributable to the SCDE segment and $157 million or 11% to the AXS segment. It is important to note that our unfunded backlog figures exclude ceiling values from sole source IDIQ contracts. The remaining balance on the $990 million US Army Switchblade contract, the remaining balance on the $874 million UAS and counter-UAS FMS contract, and the remaining balance on the $500 million JIATF 401 counter-UAS RF contract, among others, represent significant additional contract capacity beyond our reported unfunded backlog figures. Turning now to fiscal year 2027 guidance. On slide seven of the earnings presentation, you will see we are reiterating our fiscal year 2027 guidance.

Speaker #2: Unfunded backlog at the end of the first quarter was $1.4 billion, with $1.2 billion, or 89%, attributable to the SCDE segment, and $157 million, or 11%, to the AXS segment.

Speaker #2: It's important to note that our unfunded backlog figures exclude ceiling values from sole source IDIQ contracts. The remaining balance on the $990 million US Army switchblade contract, the remaining balance on the $874 million UAS and counter US FMS contract, and the remaining balance on the $500 million Giada 401 counter UAS RF contract, among others, represent significant additional contract capacity beyond our reported unfunded backlog figures.

Speaker #2: Turning now to fiscal year 2027 guidance. On slide 7 of the earnings presentation, you will see we are reiterating our fiscal year 2027 guidance.

Speaker #2: Based on our strong Q1 performance, record funded backlog position and capacity investments underway, we remain confident in our full year outlook. As Wahid mentioned in his remarks, we continue to expect fiscal year 2027 revenue to be between $2.125 billion and $2.225 billion, representing 10% growth in the midpoint over fiscal year 2026 results.

Sean Woodward: Based on our strong Q1 performance, record-funded backlog position, and capacity investments underway, we remain confident in our full-year outlook. As Wahid mentioned in his remarks, we continue to expect fiscal year 2027 revenue to be between $2.125 billion and $2.225 billion, representing 10% growth at the midpoint over fiscal year 2026 results. We continue to expect adjusted EBITDA to be between $305 million and $325 million and non-GAAP adjusted EPS between $3.02 and $3.34. Near term, non-GAAP adjusted EPS remains relatively flat year-over-year due to higher anticipated depreciation and cloud amortization expenses from the significant capital deployed in fiscal year 2026 and expected in fiscal year 2027. A few details on the revenue cadence, adjusted EBITDA profile, and non-GAAP EPS distribution. We continue to expect revenue to be stronger in the H2 of fiscal year 2027.

Speaker #2: We continue to expect adjusted EBITDA to be between $305 million and $325 million, and non-GAAP adjusted EPS between $3.02 and $3.34. Near-term non-GAAP adjusted EPS remains relatively flat year over year due to higher anticipated depreciation and cloud amortization expenses from the significant capital deployed in fiscal year 2026 and expected in fiscal year 2027.

Speaker #2: A few details on the revenue cadence, adjusted EBITDA profile, and non-GAAP EPS distribution. We continue to expect revenue to be stronger in the second half of fiscal year 2027.

Speaker #2: We're planning on an approximate 45, 55 revenue split between the first half and second half. Following this revenue cadence, we expect adjusted EBITDA to be roughly second half of the year.

Sean Woodward: We are planning on an approximate 45/55 revenue split between the H1 and H2. Following this revenue cadence, we expect adjusted EBITDA to be roughly one-third in the H1 and two-thirds in the H2 of the year. This is similar to the fiscal year 2026 results from a distribution perspective and reflects improved sales mix and higher sales volume in the back half of the year. Non-GAAP EPS is anticipated to be roughly 30/70 split between the H1 and H2. This reflects the adjusted EBITDA profile and the impacts from depreciation expense and stock-based compensation timing. We continue to expect to invest between 7% and 9% of revenue in R&D and 12% to 14% of revenue in CapEx, primarily focused on production capacity expansion across all our product lines, supported by our total backlog. Adjusted SG&A expenses are projected at 14% to 16% of revenue.

Speaker #2: This is similar to the fiscal year 2026 results from a distribution perspective, and reflects improved sales mix and higher sales volume in the back half of the year.

Speaker #2: Non-GAAP EPS is anticipated to be roughly $30.70 split between the first half and second half. This reflects the adjusted EBITDA profile and the impacts from depreciation expense and stock-based compensation timing.

Speaker #2: We continue to expect to invest between 7% and 9% of revenue in R&D, and 12% to 14% of revenue in CapEx, primarily focused on production capacity expansion across all our product lines.

Speaker #2: Supported by our total backlog, adjusted SG&A expenses are projected at 14% to 16% of revenue. In closing, we are very encouraged by our first quarter performance and the strong foundation it provides for fiscal 2027.

Sean Woodward: In closing, we are very encouraged by our Q1 performance and the strong foundation it provides for fiscal 2027. We delivered results above several of our key financial targets, generated solid bookings, and continued to make disciplined investments in the production capacity and innovation needed to support growing demand across our portfolio. With total backlog of approximately $2.8 billion and revenue visibility to the midpoint of our full year guidance at 86%, we believe the business is well positioned for the balance of the year. Importantly, our recent counter-UAS awards, including Titan and LOCUS, are already incorporated into our fiscal 2027 outlook. As we continue to scale the business, we remain focused on execution, capacity expansion, and long-term value creation in markets where we see sustained demand and favorable multi-year growth tailwind. Now, I would like to turn things back to Wahid.

Speaker #2: We delivered results above several of our key financial targets generated solid bookings and continue to make disciplined investments in the production capacity and innovation needed to support growing demand across our portfolio.

Speaker #2: With total backlog of approximately $2.8 billion and revenue visibility to the midpoint of our full year guidance at 86%, we believe the business is well positioned for the balance of the year.

Speaker #2: Importantly, our recent counter-UAS awards, including Titan and Locus, are already incorporated into our fiscal 2027 outlook. As we continue to scale the business, we remain focused on execution, capacity expansion, and long-term value creation in markets where we see sustained demand and favorable multi-year growth tailwinds.

Speaker #2: Now I'd like to turn things back to Wahid.

Speaker #1: Thanks, Sean. As Sean stated earlier, we are reaffirming our fiscal year 2027 guidance. While we remain optimistic and encouraged by the urgency placed on our solutions and the Department of War budget, there remains some uncertainty around the timing of final budget approval by the US Congress.

Wahid Nawabi: Thanks, Sean. As Sean stated earlier, we are reaffirming our fiscal year 2027 guidance. While we remain optimistic and encouraged by the urgency placed for our solutions and the Department of War budget, there remains some uncertainty around the timing of final budget approval by United States Congress. Our view is unchanged from last quarter, and we do not expect this to be a significant risk to our outlook at this time, but it is something we will continue to monitor closely. In closing, we are very pleased with the progress we made during this past quarter. We won several significant awards, which increase our revenue visibility for fiscal year 2027 and provide a strong foundation for growth in the future. We remain focused on execution as we work to meet the growing demand in our markets.

Speaker #1: Our view is unchanged from last quarter, and we do not expect this to be a significant risk to our outlook at this time. But it is something we will continue to monitor closely.

Speaker #1: In closing, we're very pleased with the progress we made during this past quarter. We want several significant awards which increase our revenue visibility for fiscal year 2027 and provide a strong foundation for growth in the future.

Speaker #1: We remain focused on execution as we work to meet the growing demand in our markets. With strong momentum across our portfolio and significant opportunities ahead, we believe the long-term potential for growth and value creation at AV has never been better or stronger.

Wahid Nawabi: With strong momentum across our portfolio and significant opportunities ahead, we believe the long-term potential for growth and value creation at AV has never been better and stronger. I would like to thank our employees, shareholders, and customers for their continued commitment to AV and our mission. With that, Sean, Denise, and I will now take your questions.

Speaker #1: I would like to thank our employees, shareholders, and customers for their continued commitment to AV and our mission. And with that, Sean, Denise, and I will now take your questions.

Speaker #3: Thank you. At this time, we'll conduct question and answer session. As a reminder to ask a question, you will need to press star 11 on your telephone and wait for your name to be announced to withdraw your question.

Operator: Thank you. At this time, we will conduct a question and answer session. As a reminder, to ask a question, you will need to press star 1 1 on your telephone and wait for your name to be announced. To withdraw your question, please press star 1 1 again. Please limit yourself to one question and one follow-up in the interest of time. Please stand by. We will compile the Q&A roster. One moment for our first question. Our first question will come from the line of Andre Madrid from BTIG. Your line is open.

Speaker #3: Please press star 11 again. Please name yourself to one question and one follow-up in interest of time. Please stand by while we compile the Q&A roster one moment for our first question.

Speaker #3: Our first question will come from Andre Madrid from BTIG. Your line is open.

Speaker #4: Hey, this is actually Ned Morgan on for Andre. Thanks for taking the question. I was just wondering, how should we think about Locus profitability, and what could the recent awards mean for SCDE margins over the longer term?

Ned Morgan: Hey, this is actually Ned Morgan on for Andre. Thanks for taking the question. I was just wondering, how should we think about LOCUST profitability, and what could the recent awards mean for SCDE margins over the longer term?

Speaker #2: So, Ned, great question. As you know, we're at an inflection point in the Segment Two profitability profile and the products that are being commercialized. The Locus product line is progressing and is expected—based on the contract window we have and the future ones we expect to win—to have a very strong margin profile going towards the second half of this year and beyond.

Wahid Nawabi: Ned, great question. As you know, we are at an inflection point in the segment 2 profitability profile and products that are being commercialized. The LOCUST product line, it is expected, based on the contract wins that we have and the future ones that we expect to win, to have a very strong margin profile going towards the H2 of this year and beyond. That is why, as you heard from Sean Woodward in the comments on our guidance, the profitability is stronger and more lopsided towards the H2 of the year. It is because a lot of the LOCUST and a few other products in that segment is going to have higher volumes as firm, fixed price contracts take over, and the margin profile improves significantly.

Speaker #2: That's why, as you heard from Sean in the comments on our guidance, the profitability is stronger and more lopsided towards the second half of the year.

Speaker #2: It's because a lot of the Locus and a few other products in that segment are going to have higher volumes as firm fixed price contracts take over, and the margin profile improves significantly.

Speaker #2: We expect the Locus product line and the segment two margin profile to eventually reach the same levels as segment one over the next couple of years.

Wahid Nawabi: We expect the LOCUST product line and the segment 2 margin profile to eventually get to the same levels as the segment 1 over the next couple of years. It is an inflection year. We are growing very fast in that market. We are working on markets and solution sets that is going to set us up for multi-billion-dollar opportunities over the next several years. As we said at the beginning of the year, our plan was to continue to transition those into more mature, production, high volume, direct commercial sales, firm fixed price contracts, all of which is going to improve the margins.

Speaker #2: So it is an inflection year. We're growing very fast in that market. We're working on markets and solution sets that are going to set us up for multi-billion-dollar opportunities over the next several years.

Speaker #2: And as we said at the beginning of the year, our plan was to continue to transition those into more mature, production, high-volume, direct commercial signals, firm fixed-price contracts—all of which is going to improve the margins.

Speaker #4: Got it. Thank you. And then maybe, staying on Locus, are you able to comment on what your current production capacity is, and then what do you see as sustainable, steady-rate production rates?

Ned Morgan: Got it. Thank you. Then maybe staying on LOCUST, are you able to comment on what your current production capacity is, and then what do you see as a sustainable, steady rate, production rates?

Speaker #2: Well, so Andre, we are winning, as you see, some landmark contracts. The entire laser weapon systems, or directed energy laser weapon system market, is essentially just beginning to evolve now.

Wahid Nawabi: Well, Andre, we are winning, as you see, some landmark contracts. The entire laser weapon systems, the directed energy laser weapon system market, is essentially starting to begin to evolve now. The adoption rate and the knee on this curve is very steep. However, the supply chain and the suppliers that provide subsystems for this is quite young, and we are scaling them and improving them as we go. That is why we made a significant investment in our Albuquerque, New Mexico, facility to expand production. We are confident that we are going to meet the rising demands. It will not surprise me in about a year or so that this is a significant franchise for the company. Well over a half a billion dollar plus a year franchise. That has been part of our strategy when we acquired BlueHalo.

Speaker #2: The adoption rate in the neon on this curve is very steep. However, the supply chain and the suppliers that provide system subsystems for this is quite young, and we're scaling them and improving them as we go.

Speaker #2: That's why we made a significant investment in our Albuquerque, New Mexico facility to expand production. We are confident that we're going to meet the rising demands. It will not surprise me in about a year or so that this is a significant franchise for the company.

Speaker #2: Well over a half a billion dollar plus a year franchise. That has been part of our strategy when we acquired Blue Halo we are making solid progress and we're making solid progress also in terms of increasing production capacity.

Wahid Nawabi: We are making solid progress, and we are making solid progress also in terms of increasing production capacity. However, having said all that, it takes some time. There are lots and lots of long lead items we have to do to get those in-house and scale those suppliers, or we bring it on more suppliers. It is a fairly large system, but we are sitting in a very, very good position. I expect this product line to be a franchise, flagship franchise for the company, essentially competing with anything else that we do in the business in terms of revenue, profit profile, and scale.

Speaker #2: However, having said all that, it takes some time. There are lots and lots of long lead items we have to deal with to get those in-house and scale those suppliers.

Speaker #2: We're bringing on more suppliers. It's a fairly large system, but we are sitting in a very regular position. I mean, I expect this product line to be a flagship franchise for the company, essentially competing with anything else that we do in the business in terms of revenue, profit profile, and scale.

Speaker #4: Got it. Thank you.

Ned Morgan: Got it. Thank you.

Speaker #2: Welcome, Andre.

Wahid Nawabi: You are welcome, Andre.

Speaker #3: And our next question will come from Louis De Palma from William Blair. Your line is open.

Operator: Our next question will come from the line of Louie DiPalma from William Blair. Your line is open.

Speaker #5: For heating, and Sean, congrats again on the e-hail contract.

Louie DiPalma: Wahid and Sean, congrats again on the E-HEL contract.

Speaker #2: Thank you. Thank you, Louis.

Wahid Nawabi: Thank you, Louie.

Sean Woodward: Thank you.

Sean Woodward: Thank you, Louie.

Speaker #5: I was wondering—you recently announced an international direct commercial sale shortly after the e-hail contract. In terms of the total addressable market, how do you view the size of potential international sales relative to domestic sales?

Louie DiPalma: I was wondering, you recently announced an international direct commercial sale shortly after the E-HEL contract. In terms of the total addressable market, how do you view the size of potential international sales relative to domestic sales? I know following the Ukraine war, you've been able to sell many Switchblade 300 and 600 to allies, and you have a long history of selling the Raven and Puma to allies, but how do you view the international market for the laser weapon system? Thanks.

Speaker #5: I know, following the Ukraine war, you've been able to sell many Switchblade 300s and 600s to allies, and you have a long history of selling the Raven and Puma to allies. But how do you view the international market for the laser weapon system?

Speaker #5: Thanks.

Speaker #2: Thank you, Louise. Yes, we're very pleased with these recent awards. As you said, not only did we win this marquee franchise contract and program with the U.S. Army for nearly half a billion dollars, we also won—and we announced—a direct commercial sale for the first laser weapon systems that we're aware of to an international ally.

Wahid Nawabi: Thank you, Luis. Yes, we're very pleased with these recent awards. As you said, not only do we win this marquee franchise contract and program with the US Army for nearly USD 500 million, we also won, and we announced a direct commercial sale for the first laser weapon systems that we're aware of to an international ally. We expect this to be the beginning of a lot more awards, Luis, number one. Number two, the market for these LOCUS systems, domestically and internationally, are going to be equivalent, probably in size. You saw domestically, we've already won a USD 500 million contract, and we're engaged with several additional customers. I think it's the beginning of this inflection point of adoption for the US military. Beyond that, I see equivalent or if not more demand for these systems internationally.

Speaker #2: We expect this to be the beginning of a lot more awards, Louis, number one. And number two, the market for these Locus systems, domestically and internationally, is probably going to be equivalent in size.

Speaker #2: As you saw, domestically we've already won a $500 million contract and we're engaged with several additional customers. I think it's the beginning of this inflection point of adoption for the U.S. military, but beyond that, I see equivalent, if not more, demand for these systems internationally.

Speaker #2: There are lots of places in the world, including the Middle East, Asia Pacific, and Eastern Europe, that could benefit from our systems because the solutions that exist today cannot economically be sustainable and sustain a long-term conflict where thousands, if not tens of thousands, of these Group 1, 2, 3 drones are coming and we're shooting million-dollar missiles at them.

Wahid Nawabi: There's lots of places in the world, including the Middle East, Asia Pacific, and Eastern Europe, that could benefit from our systems because the solutions that exist today cannot economically be sustainable and sustain a long-term conflict where thousands, if not tens of thousands of these Group 1, 2, 3 drones are coming, and we're shooting million-dollar missiles at them. LOCUS solves that problem both in terms of economics and depth of magazine. It's very, very unique in that perspective. So I tend to believe that there's a multi-billion dollar market just for military application. If you fast-forward this strategy two to three years later, I could also see non-defense applications for critical infrastructure sites that could become available and suitable for adoption of our laser weapon systems.

Speaker #2: Locus solves that problem, both in terms of economics and depth of magazine. It's very, very unique in that perspective. So, I tend to believe that there's a multibillion-dollar market just for military applications.

Speaker #2: If you fast-forward this strategy two to three years later, I could also see non-defense applications for critical infrastructure sites that could become available and suitable for adoption of our laser weapon systems.

Speaker #2: And AV is unique because we're one of the very few companies in the world that has gotten to a full-rate production of systems that are deployed now in battlefields today.

Wahid Nawabi: AV is unique because we're one of the very few companies in the world that have got to a full rate production of systems that are deployed now in the battlefield today. That is a very unique position, and that's why we're expanding capacity, because we think over the next several years, this could be a massive growth driver and value creation opportunity for the company.

Speaker #2: And that is a very unique position, and that's why we're expanding capacity, because we think over the next several years this could be a massive growth driver and valuation opportunity for the company.

Speaker #5: Fantastic. Thanks, Wahid and Sean. That's it for me.

Louie DiPalma: Fantastic. Thanks, Wahid and Sean. That is it for me.

Speaker #2: You're welcome, Louis.

Wahid Nawabi: You are welcome, Luis.

Speaker #3: Thank you. Our next question will come from the line of Peter Arment from Baird. Your line is open.

Operator: Thank you. Our next question will come from the line of Peter Arment from Baird. Your line is open.

Speaker #4: Yeah. Hey, thanks. Wahid and Sean, good to talk to you. Wahid, could you give us an update on—kind of like—you won some very large IDIQ contracts supporting the Switchblade production?

Peter Arment: Yeah. Hey, thanks, Wahid and Sean. Good to talk to you. Wahid, could you give us an update on kind of like you have won some very large IDIQ contracts supporting the Switchblade production. Where do we stand on what is left in those vehicles, and could you give us an update there? Thanks.

Speaker #4: Where do we stand on what's left in those vehicles, and could you give us an update there? Thanks.

Speaker #2: Sure. So, as you know, our win rate and our progress over the last several quarters has been phenomenal. I can't think of another time in the last 16-plus years I've been with the company that we've had such a tremendous track record of winning large, strategic contracts.

Wahid Nawabi: Sure. As you know, our win rate and our progress over the last several quarters has been phenomenal. I cannot think of another time in the last 16+ years I have been with the company that we have had such tremendous track record of winning large strategic contracts. We had a lot of great years, but these are very unique years, and I think this is going to continue. In terms of what is remaining, there are lots of different contracts. Sean has the details on that. In general, there are several contracts that we have. There is nearly a billion-dollar US Army IDIQ sole source that we won, which is coming towards a full value. Then we have an international one that is actually barely scratched the surface in terms of how much of that we have used. Then we also are working on additional contracts with other customers. Sean?

Speaker #2: We've won; we had a lot of great years, but these are very unique years, and I think this is going to continue. In terms of what's remaining, there's lots of different contracts.

Speaker #2: Sean has the details on that. In general, there are several contracts that we have. There is a nearly $1 billion U.S. Army IDIQ sole source that we won, which is coming towards its full value, and then we have an international one that's actually barely scratched the surface in terms of how much of that we've used.

Speaker #2: And then we also are working on additional contracts with other customers. Sean?

Speaker #6: Yeah, Peter, we have a couple hundred million left on the current $990 million IDIQ, under the current ceiling value remaining.

Sean Woodward: Yeah, Peter, we have a couple hundred million left on the current $990 million IDIQ under the current ceiling value remaining.

Speaker #4: Got it. That's great. That's great detail. And then, just as a quick follow-on, just congrats on the P550 award. What's the next—I guess, what's the path for those 82 aircraft, when you'll be delivering those, and is there another competitive downselect we should be thinking about?

Peter Arment: Got it. That is great detail. Then just as a quick follow-on, just congrats on the P550 award. What is the next, I guess, what is the path for those 82 aircraft, when you will be delivering those, is there another competitive down select we should be thinking about?

Speaker #2: Sure. So, as you know, the LRR program record that the U.S. Army has is expected to be about a $1 billion value long term.

Wahid Nawabi: Sure. As you know, the LRR program record that the US Army has is expected to be about a billion-dollar value long term over the next several years. We are getting the lion's share of the awards. I believe it is between us and one other competitor where we know that for a fact, based on the US Army's announcement. We are essentially getting well over 80% of the dollars of those awards so far, maybe close to 90% of the awards. We are actively delivering those systems as we speak, and we expect to deliver the vast majority of that contract this fiscal year. Almost all of that $117 million this year, this fiscal year. That is why we have been ramping up production. That is why we have been making systems.

Speaker #2: Over the next several years, we are getting the lion's share of the awards. I believe it's between us and one other competitor—we know that for a fact.

Speaker #2: Based on the US Army's announcement, we're essentially getting well over 80% of the dollars of those awards so far, maybe close to 90% of the awards.

Speaker #2: We're actively delivering those systems as we speak, and we expect to deliver the vast majority of that contract this fiscal year—almost all of that $117 million this year.

Speaker #2: This fiscal year—that's why we've been wrapping up production. That's why we've been making systems. And, by the way, the most important factor for me, besides us delivering, is the success of the product in the field. The satisfaction of the warfighter when they get our systems in their hands versus our competition is incredibly high.

Wahid Nawabi: The most important factor for me, besides us delivering, is that the success of the product in the field, the satisfaction of the war fighter when they get our systems in their hand versus our competition is incredibly high. Incredibly high. What does that mean? It means when the customer and the war fighter uses our product in the battlefield and our systems work and deliver as promised, if not even more, and our competitors don't, the future acquisitions will be affected by that. It is natural. It is very common for that to happen. We expect the United States Army to continue to award more contracts as we go forward because they are just starting the fulfillment of that program, which is close to USD 1 billion over the next several years.

Speaker #2: Incredibly high. What does that mean? It means when the customer and the warfighter use our product in the battlefield and our systems work and deliver as promised—and, if not, even more—and our competitors' don't, the future acquisitions will be affected by that.

Speaker #2: It's natural. It's very common for that to happen. And so we expect the U.S. Army to continue to award more contracts as we go forward, because they're just starting the fulfillment of that program, which is close to $1 billion over the next several years.

Speaker #2: And I think we're in a very good position, and I'm very thankful and appreciative of what our team has done—worked so hard to get us to this stage.

Wahid Nawabi: I think we are in a very good position, and I am very thankful and appreciative of what our team has done, worked so hard to get us to this stage.

Speaker #4: Appreciate it. I'll jump back into Q1. Thanks.

Peter Arment: Appreciate it. I will jump back in the queue. Thanks.

Speaker #2: Thank you. Peter.

Wahid Nawabi: Thank you, Peter.

Speaker #3: Thank you. And our next question comes from Jonathan Sigman at Stifel. Your line is open.

Operator: Thank you. Our next question will come from the line of Jonathan Siegmann from Stifel. Your line is open.

Speaker #7: Hey, good afternoon. Wahid, Sean, Denise—thanks for taking my question. Congratulations on the award, and congratulations on the orders. Maybe just to touch a little bit on cyber and mission.

Jonathan Siegmann: Hey, good afternoon, Wahid, Sean, and Denise. Thanks for taking my question.

Wahid Nawabi: Hi, Jonathan.

Jonathan Siegmann: Congratulations on the orders. Maybe just to touch a little bit on Space, Cyber and Directed Energy. USD 83 million for the quarter. We were glad to see some sequential growth from the H2 of last year. That might suggest year-over-year growth might be possible in the back H2 of the year. Are there any headwinds strengthening or anything else that we should keep in mind when thinking about that sub-segment? Thank you.

Speaker #7: $83 million for the quarter. We are glad to see some sequential growth from the second half of last year. That might suggest year-over-year growth could be possible in the back half of the year.

Speaker #7: Are there any headwinds strengthening, or anything else that we should keep in mind when thinking about that subsegment? Thank you.

Speaker #2: John, so look, we're fortunate because we have a very diversified portfolio of products, solutions, businesses, and groups of business units as well. The cyber security and mission services is a fairly small part of our growth this year.

Wahid Nawabi: John, so look, we are fortunate because we have a very diversified portfolio of products, solutions, businesses, and groups of business units as well. The cybersecurity and mission services are a fairly small part of our growth this year. We do not expect that to be at the same pace of growth as the rest of the businesses. We are making significant improvements there. It is not the main thesis of our strategy for growth or long-term value creation either. We have got plenty of growth, as you saw for this quarter, on many other fronts. Seven or eight different product lines and platforms that are at inflection points to grow very handsomely, not only this year, but the years to come. Overall, we do expect the financial profile of that business to improve.

Speaker #2: We don't expect that to be at the same pace of growth as the rest of the businesses. We're making significant improvements there. It is not the main thesis of our strategy for growth or for long-term value creation either.

Speaker #2: And so, we've got plenty of growth, as you saw for this quarter on many, many other fronts—seven or eight different product lines, platforms that are at inflection points to grow very, very handsomely, not only this year but in the years to come.

Speaker #2: So, overall, we do expect the financial profile of that business to improve. The growth in that business has never been expected to be as high as the rest of our businesses.

Wahid Nawabi: The growth in that business has never been expected to be as high as the rest of our businesses. It is just a portfolio approach to our business, a diversified portfolio, and we are making progress. We are pleased with the results so far. We are going to continue to actually work on it. You should see more improvements financially in that business, but it is not going to have the kind of growth as the rest of the business because we were expecting that from the beginning of this business. It is just not the same kind of a market. The profile of that business is very different. However, for the year, we remain very focused on growing the entire business. As Sean Woodward said on the guidance, 10% to the midpoint of our guidance range, year-over-year organic growth.

Speaker #2: But it's just a portfolio approach to our business—a diversified portfolio—and we're making progress. We're pleased with the results so far, and we're going to continue to actually work on it.

Speaker #2: You should see more improvements financially in that business, but it's not going to have the kind of growth as the rest of the business, because we were expecting that to begin with, from the beginning of this business.

Speaker #2: It's just not the same kind of market, and the profile of that business is very different. However, for the year, we remain very focused on growing the entire business.

Speaker #2: As we said, as Sean said on the guidance, 10% to the midpoint of our guidance range, year-over-year organic growth. We're looking fairly good, and we're positioned extremely well, and we came off the first quarter extremely strong.

Wahid Nawabi: We are looking fairly good, and we are positioned extremely well, and we came off the Q1 extremely strong.

Jonathan Siegmann: That is really helpful. Was there any deviation on the timing that you expected on these awards? Was anything slower? Just kind of wondering, the question we are getting is why you did not raise. Just hoping to catch on maybe some of the things that did not go your way if things are just happening a little bit slower than you thought. Thank you.

Speaker #7: That's really helpful. And was there any deviation on the timing that you expected on these awards? Was anything slower or just kind of wondering the question we're getting is why you didn't raise?

Speaker #7: So, just hoping to catch on maybe some of the things that didn't go your way, if things are just happening a little bit slower than you thought.

Speaker #7: Thank you.

Speaker #2: So, John, that's a great question. We've asked ourselves that question several times, right? We believe that we've got a lot of growth coming our way.

Wahid Nawabi: John, that's a great question. We've asked ourselves that question several times. We believe that we've got a lot of growth coming our way. There's one thing that's really uncertain about the market today, which is the timing of the government fiscal year 2027 budgets. We have an election year with a lot of elections and uncertainty within United States Congress. That by itself represents a significant potential risk. We don't believe that's going to affect our current guidance, and it's only our Q1. We just came out of the gate on our Q1. We're positioned extremely well. As things progress over the next quarter or so, we'll keep you updated. The long story for AV and the growth potential is fantastic.

Speaker #2: There is one thing that's really uncertain about the market today, which is the timing of the government fiscal year 2027 budgets. We have an election year, with a lot of elections and uncertainty within Congress.

Speaker #2: That by itself represents a significant potential risk. We don't believe that's going to affect our current guidance. And it's only our first quarter—we just came out of the gate on our first quarter.

Speaker #2: We're positioned extremely well, and as things progress over the next quarter or so, we'll keep you updated. The long story for AV and the growth potential is fantastic.

Speaker #2: Well, I can genuinely tell you that for the years that I've been here, the rate of wins that we're having and the strategic progress we're making in several strategic areas of our platforms and franchises is positioning us for lots and lots of fantastic growth and value creation opportunities beyond fiscal '27.

Wahid Nawabi: I can genuinely tell you that for the years that I've been here, the rate of wins that we're having and strategic progress we're making in several strategic areas of our platforms and franchises is positioning us for lots of fantastic growth and value creation opportunities beyond fiscal 2027. That's where we're focused on long-term shareholder value creation, and I think we're on the right track in that respect of the business.

Speaker #2: That's what we're focused on—long-term value and shareholder value creation. And I think we're on the right track in that aspect of the business.

Speaker #7: Thank you.

Jonathan Siegmann: Thank you.

Speaker #2: You're welcome, John.

Wahid Nawabi: You're welcome, John.

Speaker #3: Thank you. And our next question will come from the line of Seth Seifman from JP Morgan. Your line is open.

Operator: Thank you. Our next question will come from the line of Seth Seifman from J.P. Morgan. Your line is open.

Speaker #8: Okay, thanks very much, and good morning—or we're sorry, good evening. I just wanted to ask: in the uncrewed systems business, we saw some strong results and pretty much no change relative to the fourth quarter, even though there's usually a meaningful seasonal step-down.

Seth Seifman: Yeah. Thanks very much, and good morning. Or sorry, good evening. Just wanted to ask in the Uncrewed Aircraft Systems business, we saw some strong results and pretty much no change relative to Q4, even though there is usually a meaningful seasonal step down. Anything pulled forward there or any reason we would not expect sales there to grow off of the Q1 level?

Speaker #8: Anything kind of pulled forward there, or any reason we wouldn't expect sales there to grow off of the Q1 level?

Speaker #7: Hey, Seth. Yeah. So, the uncrewed aircraft systems business performed exceptionally well in the first quarter. Seventy-one percent year-over-year increase, expected to continue with significant growth this fiscal year, included in our guidance.

Sean Woodward: Hey, Seth. Yeah, so the Uncrewed Aircraft Systems business performed exceptionally well in Q1. 71% year-over-year increase, expected to continue with a significant growth this fiscal year included in our guidance. The strong awards that we got on P550, the increasing in the JUMP 20-X, and the strong Puma sales that we are seeing both domestically and internationally all led to that sustained growth, and we expect to continue to see growth in this business throughout the next few quarters.

Speaker #7: The strong awards that we got on P550, the increase in the Jump 20X, and the strong Puma sales that we're seeing both domestically and internationally all led to that sustained growth.

Speaker #7: And we expect to continue to see growth in this business throughout the next few quarters.

Speaker #8: Okay. Okay. And then maybe as you think about the directed energy franchise growing to that sort of— I think it was about the half-a-billion-dollar range.

Seth Seifman: Okay. Then maybe as you think about the directed energy franchise growing to that sort of, I think it was about half a billion dollar range. How do you think about the, do you think about that as sort of a small number of relatively chunky orders? Do you think about it as having a large number of customers with a large number of smaller orders? When you look at it, how that market evolves, how do you foresee that breakdown?

Speaker #8: How do you think about that? Do you think of it as a small number of relatively chunky orders, or do you see it as having a large number of customers with a large number of smaller orders?

Speaker #8: When you look at it—kind of how that market evolves—how do you foresee that breakdown?

Speaker #2: Seth, that's a great question. I'm glad you brought that up. This is Wahid. What I would tell you is that I'll go back in history, right?

Wahid Nawabi: Seth, that's a great question. I'm glad you brought that up. This is Wahid. What I would tell you is that I'll go back in history, right? Four or 5 years ago, when the Ukraine conflict started, it was an inflection point in our loitering munition and one-way attack drone market as a whole. The entire market was tiny, very small. What we saw in the Ukraine conflict that the use and the efficacy of drones, in one-way attack drones especially, made a phenomenal impact. War fighting basically changed forever as a result of it. I think we're at a similar inflection point on directed energy and counter-UAS. All the weapon systems and defeat mechanisms that the US has, and all of our allies has, basically every military in the world, to address high volume attacks by one-way attack drones is economically not sustainable.

Speaker #2: Four or five years ago, when the Ukraine conflict started, it was an inflection point in our loitering munition and one-way attack drone market as a whole.

Speaker #2: The entire market was tiny, very small. And what we saw in the Ukraine conflict was that the use and efficacy of drones, and one-way attack drones especially, made a phenomenal impact, and warfighting basically changed forever as a result of it.

Speaker #2: I think we're at a similar inflection point on directed energy and counter-UAS. All the weapon systems and defeat mechanisms that the U.S. has, and all of our allies have—basically every military in the world—to address high-volume attacks by one-way attack drones, is economically not sustainable.

Speaker #2: We cannot continue to shoot down a $100,000 to $150,000 Shahed drone with a $1 million—or even $5 to $10 million—missile. It's just not sustainable against countries like China and Russia in the long run.

Wahid Nawabi: We cannot continue to shoot down a $100,000, $150,000 Shahed drone with a $1 million to $5 million to $10 million missile. It's just not sustainable against countries like China and Russia in the long run. The sweet spot on that is a direct energy system that has an unlimited magazine of firepower, and it changes the paradigm in economics from millions of dollars per shot to literally less than $10 a shot. That's what our LOCUS system offers today. That's why we won the first program record for full production in the US military's history. I can see in the next 5 years that that business can be bigger than our loitering munition business. That business has grown to over half a billion dollars already over the last 4 or 5 years.

Speaker #2: The sweet spot on that is a direct energy system that has an unlimited magazine of firepower, and it changes the paradigm and economics from millions of dollars per shot to literally less than $10 a shot.

Speaker #2: That's what our LOCUST system offers today. That's why we won the first program of record for production in the US military's history. I can see in the next five years that that business could be bigger than our loitering munition business.

Speaker #2: That business has grown to over half a billion dollars already over the last four or five years. And I think the market for laser weapon systems and directed energy is at least as big, if not bigger, globally.

Wahid Nawabi: I think the market for laser weapon systems and direct energy is at least as big, if not bigger, globally. We're just at the beginning of that adoption. Just at the beginning. It's going to take some time because the US military has been working on this, and all of our competitors, for literally 3 to 4 decades. We're the first company, to our knowledge, that has really cracked the code and is delivering systems that, at scale, that is actually effective in conflicts today in the Middle East and Ukraine and other parts of the world, including the southern border. I consider this to be an inflection point. Over the next several quarters and year, this business can grow dramatically for AeroVironment. The market is very large long-term.

Speaker #2: And we're just at the beginning of that adoption, just at the beginning. And it's going to take some time because the U.S. military has been working on this, and all of our competitors, for literally three to four decades.

Speaker #2: And we're the first company, to our knowledge, that has really cracked the code and is delivering systems at scale that are actually effective in conflicts today.

Speaker #2: In the Middle East, in Ukraine, and other parts of the world, including the southern border. And so, I consider this to be an inflection point.

Speaker #2: And over the next several quarters and a year, this business could grow dramatically for AV. The market is also very large long-term.

Speaker #8: All right. Thanks very much.

Seth Seifman: Great. Thanks very much.

Speaker #2: You're welcome, Seth.

Wahid Nawabi: You are welcome, Sam.

Speaker #3: Thank you. Our next question will come from the line of Ahsan Bolig from Needham. Your line is open.

Operator: Thank you. Our next question will come from the line of Austin Bohlig from Needham. Your line is open.

Speaker #5: Hey guys, thanks for taking my question, and congrats on the solid results. I just wanted to spend a quick question on the current funding environment.

Austin Bohlig: Hey, guys. Thanks for taking my question, and congrats on the solid results. I just wanted to spend a quick question on the current funding environment. Just given the Q1 strong results, it seems like things are picking up. I am just curious if we could get a sense of, with the record funding of or money that was appropriated in fiscal 2026, do you guys have a sense of how much of that is yet to be deployed as we get into the H2 of the year?

Speaker #5: Just given the Q1 strong results, it seems like things are picking up. Just curious if we could get a sense of what the record funding, or money that was appropriated, in fiscal '26 was.

Speaker #5: Do you guys have a sense of how much of that is yet to be deployed as we get into the second half of the year?

Speaker #2: Yes, Seth. So, look, we have a great start on this fiscal year. We affirmed the guidance visibility levels that Sean articulated, which is historically very high. We should be able to achieve the outcomes that we have in front of us.

Wahid Nawabi: Yes, Sam. Look, we have a great start on this fiscal year. We affirmed the guidance because at the visibility levels that Sean articulated, which is historically very high, we should be able to achieve the outcomes that we have in front of us. That is why we reaffirmed our guidance for this fiscal year. The biggest, what I call question mark is, how fast can United States Congress approve the next fiscal year's budget? It is really not that relevant whether it is $1.3 billion or $1.5 trillion, I am sorry, or $1.8 trillion. Whatever the number ends up being, as long as the budget gets approved, and most likely it will be not less than the government fiscal year, I think it will be fine for AeroVironment because the categories that we play in is significant dollars. Okay? Now, the timing of that is a little bit of risk.

Speaker #2: That's why we reaffirmed our guidance for this fiscal year. The biggest, what I call, question mark is how fast Congress can approve the next fiscal year's budget.

Speaker #2: It's really not that relevant whether it's $1.3 billion, or $1.5 trillion—I'm sorry, or $1.8 trillion. Whatever the number ends up being, as long as the budget gets approved, and most likely it'll be not less than last government fiscal year.

Speaker #2: I think it’ll be fine for AV because the categories that we play in are significant dollars, okay? Now, the timing of that is a little bit of risk.

Speaker #2: We don't consider that to be a risk for our current guidance. But if that were to go longer, then obviously the risk profile increases.

Wahid Nawabi: We don't consider that to be a risk for our current guidance. But if that were to go longer, then obviously the risk profile increases, and we're going to keep you updated. That's number one. Number two, the reason why we're ramping up production in several of our products in several of our sites is because we're getting ready for a potential scenario where the government is going to get the money, and whoever can deliver at scale reliably and effectively most likely going to benefit. We have benefited from that in the past, and we're positioning ourselves for that this year as well. That's the reason why we're aggressively and judiciously investing in areas that we believe will have solid returns for our company, not only this fiscal year, for years to come.

Speaker #2: And we're going to keep you updated. So that's number one. Number two, the reason why we're ramping up production at several of our products and several of our sites is because we're getting ready for a potential scenario where the government is going to get the money, and whoever can deliver at scale reliably and effectively is most likely going to benefit.

Speaker #2: We have benefited from that in the past, and we're positioning ourselves for that this year as well. And so, that's the reason why we're aggressively and judiciously investing in areas that we believe will have solid returns for our company not only this fiscal year, but for years to come, okay?

Speaker #5: Great. And a quick follow-up just on the recent announcements around tariffs and drone components. Just curious what the impact could be to your guys' business.

Austin Bohlig: Okay, great. A quick follow-up just on the recent announcements around tariffs and drone components. Just curious on what the impact could be to your guys' business.

Speaker #2: So yes, the tariffs, of course, were a welcome decision by our government, the Pentagon, as well as the President. We do not see that as having a negative impact on us.

Wahid Nawabi: Yes, the tariffs, of course, was a welcomed decision by our government, and The Pentagon, as well as the president. We do not see that as a negative impact on us. If anything, we consider that to be a positive. Why? The reason why is because over 98% of our supply chain and supply base is all domestic. We do not rely on imports from foreign countries, especially countries like China, for any of our systems. Any of our systems, okay? Number one. The other 2% or so of our supply base are the closest allies to the United States, Canada, Germany, Israel, et cetera. So we're in a very good position because we've been working on this problem ahead of the decisions years in advance.

Speaker #2: If anything, we consider that to be a positive. Why? The reason why is because over 98% of our supply chain and supply base is all domestic.

Speaker #2: We do not rely on exporting or importing from foreign countries, especially countries like China, for any of our systems—any of our systems. Okay? Number one.

Speaker #2: The other 2% or so of our supply base are the closest allies to the United States—Canada, Germany, Israel, etc., etc. So we're in a very good position because we've been working on this problem ahead of the decisions, years in advance.

Speaker #2: It's part of the AV DNA that when we develop capabilities and secure our supply chain, we secure those with multiple sources—and as much as possible, domestically.

Wahid Nawabi: As part of the AV DNA, when we develop capabilities and we secure supply chain, that we secure those with multiple sources and as much as possible domestically. That's a competitive advantage for AV, in my view. We don't expect that to be a negative impact, and it could be a positive impact because we can deliver cost-effectively where the competitors have to actually adjust to that in a while.

Speaker #2: That's a competitive advantage for AV in my view. And so we don't expect that to be a negative impact—it could actually be a positive impact, because we can deliver cost-effectively where the competitors have to adjust to that environment.

Speaker #5: All right. Well, thank you, guys. Keep up the good work.

Austin Bohlig: Well, thank you, guys. Keep up the good work.

Speaker #2: Thank you, Seth. Thank you.

Wahid Nawabi: Thank you, Sam.

Speaker #3: Thank you. And our next question will come from the line of Pete Skibitsky from Alembic Global. Your line is open.

Operator: Thank you. Our next question comes from the line of Pete Skibitski from Alembic Global. Your line is open.

Speaker #6: Yeah. Good evening, guys. And congrats on E-Health for sure. Yeah. Wahid, I was wondering if you could update us. It's something we haven't heard in a while is just used to update us on the number of countries you've been approved to export systems to.

Pete Skibitski: Yeah. Good evening, guys, and congrats on E-HEL, for sure.

Wahid Nawabi: Thank you.

Pete Skibitski: Wahid, I was wondering if you could update us. Something we haven't heard in a while is just, you used to update us on the number of countries you've been approved to export systems to. Maybe Switchblade, but new programs like Mayhem 10, Red Dragon, maybe P550. I do not know if you had those at hand, but just wondering what we are up to in terms of the approved country list on some of those programs.

Speaker #6: Maybe Switchblade, but new programs like Mayhem 10, Red Dragon, maybe P550—I don't know if you had those at hand. I was just wondering what we're up to in terms of the approved country list on some of those programs.

Speaker #2: Yeah. So, Pete, the vast majority of our loitering munition and precision strike systems have been domestic demand and orders that we've gotten, as Sean mentioned, on the $990 million-plus U.S. Army contract for loitering munition.

Wahid Nawabi: Yeah. Pete, vast majority of our loitering munition and Precision Strike systems have been domestic demand in orders that we have gotten. As Sean mentioned, on the $990 million-plus US Army contract for loitering munition. Vast majority of that is domestic consumption. Some of it US has taken to give to some of our allies, but majority of it is US, right? A lot of the growth and demand for Switchblade in the next H2 of this year and also beyond this fiscal year, most likely going to come from countries outside US, who we have been working with to get them to procure these systems and award us contract. We have announced a few of those, but there is a list of close to 20 different countries, allies, that we have been approved for both FMS and DCS sales. The list is pretty large.

Speaker #2: Vast, vast majority of that is domestic consumption. Some of it US is taken to give to some of our allies, but majority of it is US, right?

Speaker #2: A lot of the growth in demand for Switchblade in the second half of this year, and also beyond this fiscal year, is most likely going to come from countries outside the U.S., who we've been working with to get them to procure these systems and award these contracts.

Speaker #2: We have announced a few of those, but there's a list of close to 20 different countries—allies—that we've been approved for both FMS and DCS sales.

Speaker #2: The list is pretty large, and you will see awards come in as we progress throughout this year and next year. That is going to continue to grow the international adoption of Switchblade and loitering munitions, and the other platforms that we have in the precision strike segment.

Wahid Nawabi: You will see awards to come in as we progress throughout this year and next year, that is going to continue to grow the international adoption of Switchblade and loitering munition, and the other platforms that we have in the Precision Strike over the next several quarters and years. So I think you are definitely onto something that that business is going to continue to grow. The domestic demand really has been the dominant factor in growth so far, and it is going to shift a little bit more towards international demand. It is still going to be a significant contributor to growth for AV overall for this year and next year.

Speaker #2: Over the next several quarters and years, I think you’re definitely onto something—that business is going to continue to grow. The domestic demand has really been the dominant factor in growth so far.

Speaker #2: And it's going to shift a little bit more towards international demand, and it's still going to be a significant contributor to growth for AV overall for this year and next year.

Speaker #6: Okay, great. Appreciate that. Just last one for me. You talked about the Army LRKI maybe wanting to accelerate that. When do you think you'll finish the test and certification phase, and then enter production on that program?

Pete Skibitski: Okay, great. Appreciate that. Just last one for me. You talked about the Army LRKI maybe wanting to accelerate that. When do you think you will kind of finish the test and certification phase and then enter production on that program?

Speaker #2: So great question, Pete, because our strategy for counter-UAS is not a one-prong strategy. It's a layered defense approach. A layered defense system means that first, we use the world's best jammers, the Titan series, which is one of our fastest-growing product lines and franchises.

Wahid Nawabi: So great question, Pete, because our strategy for counter-UAS is not a one-pronged strategy. It is a layered defense approach. A layered defense system means that first we use the world's best jammers, our Titan series, which is one of our fastest-growing product lines and franchises, to be able to defeat drones that use RF communication. When that does not work, then you apply our laser weapon systems called LOCUST. If that does not work, then you go to the last resort, which is you use a kinetic missile or weapon to shoot down any drone that is from Group 1 to 3. Today's arsenal of US weapon systems and missiles does not have an economically viable solution to address this problem. That is precisely the reason why this is a strategic priority for the US Army.

Speaker #2: To be able to defeat drones that use RF communication. When that doesn't work, then you apply our laser weapon systems called LOCUST. And if that doesn't work, then you go to their last resort, which is you use a kinetic missile or weapon to shoot down any drone that's from Group 1 to 3.

Speaker #2: Today's arsenal of U.S. weapon systems and missiles does not have an economically viable solution to address this problem. That is precisely the reason why this is a strategic priority for the U.S. Army.

Speaker #2: The US Army wants us to go faster, because they recognize that if they continue to shoot million-dollar missiles at $100,000 to $150,000 Shaheds, it's not going to be economically sustainable.

Wahid Nawabi: US Army wants us to go faster because they recognize that if they continue to shoot million-dollar missiles at $100,000 to $150,000 Shaheds, it is not going to be economically sustainable. Congress actually provided us with additional funding to accelerate. We are aggressively attacking that. That is part of the investments we are making in our Huntsville facility. We have the support of Congress, we have the support of the US Army, and we have the support of The Pentagon to accelerate that. We have won that, and it is our chance to actually build another franchise product line for AV. This year and next year, we are going to be in the rapid testing and certification of this missile. It is literally a brand-new missile for the US military. We are expected to deliver about 60 to 80 systems over the next 12 months or so to 18 months.

Speaker #2: So Congress actually provided us with additional funding to accelerate. We are aggressively attacking that. That’s part of the investments we’re making in our Huntsville facility.

Speaker #2: We have the support of Congress. We have the support of the U.S. Army. And we have the support of the Pentagon to accelerate that.

Speaker #2: We have won that, and it's our chance to actually build another franchise product line for AV. This year and next year, we're going to be in the rapid testing and certification of this missile.

Speaker #2: It's literally a brand-new missile for the U.S. military, and we are expected to deliver about 60 to 80 systems over the next 12 to 18 months or so.

Speaker #2: And then once that is completed, then we're going to get into a initial full rate low rate production and full rate production. The full rate production of that missile is going to be a billion dollar franchise long term.

Wahid Nawabi: Once that is completed, then we are going to get into initial low rate production and full rate production. The full rate production of that missile is going to be a billion-dollar franchise long term. That is probably about 12 months away from now, given what it takes to get to that level over the next 12 to 18 months, Pete.

Speaker #2: And that's probably where—about 12 months from now—given what it takes to get to that level over the next 12 to 18 months, Pete.

Speaker #6: Okay. Great. I appreciate it.

Pete Skibitski: Okay, great. I appreciate it.

Speaker #2: You're welcome, Pete.

Wahid Nawabi: You are welcome, Pete.

Speaker #3: Thank you. And our next question will come from the line of Trevor Walsh from Citizens. Your line is open.

Operator: Thank you. Our next question will come from the line of Trevor Walsh from Citizens. Your line is open.

Speaker #7: Great. Hey team, thanks for taking the questions. Sean, maybe I'll start with you. I appreciate the color around the gross margin on the services business.

Trevor Walsh: Great. Hey, team, thanks for taking the questions. Sean, maybe I will start with you. I appreciate the color around the gross margin on the services business. Is that really just going to be a function or I guess how long is that going to stick with us in terms of that being a bit of a drag? Is it really just until the revenues come back to kind of cover the headcount? Are there other kind of dynamics maybe over the next couple of quarters that you guys can shift things around so that that is not as much of a factor? Any additional color you can provide there would be great.

Speaker #7: Is that really just going to be a function, or, I guess, how long is that going to stick with us in terms of that being a bit of a drag? Is it really just until the revenues come back to kind of cover the headcount?

Speaker #7: Or are there other kinds of dynamics, maybe over the next couple of quarters, that you guys can shift things around so that that's not as much of a factor? Just any additional color you can provide there would be great.

Speaker #2: Yeah, Trevor, great question. Yeah. So the services margins, we did see a downtick in quarter one compared to last year, mainly driven by the volume and the reduction in the overall business volume of our services revenue.

Wahid Nawabi: Yeah, Trevor, great question. The services margins, we did see a downtick in Q1 compared to last year, mainly driven by the volume and the reduction in the overall business volume of our services revenue. With the SCAR contract being canceled and some of that revenue not being able to absorb the fixed costs, we saw the reduction in the gross margins. As the volume increases through some of the key awards that we are expecting to be delivering on, and the overall services revenues increase, we expect the margins to improve slightly. Services margins is not really where we are focused on growing overall margins. Really, the transition to products and commercialization of our products is really where the expansion of our overall EBITDA is going to come from. But near term, the volume will be the major driver to improve the margins on the services side.

Speaker #2: But with the SCAR contract being canceled, and some of that revenue not being able to absorb the fixed costs, we saw the reduction in the gross margins.

Speaker #2: As the volume increases through some of the key awards that we're expecting to deliver on, and as overall services revenues increase, we expect margins to improve slightly.

Speaker #2: Service margins aren't really where we're focused on growing overall margins. Really, the transition to products and commercialization of our products is where the expansion of our overall EBITDA is going to come from.

Speaker #2: But in the near term, volume will be the major driver to improve margins on the services side.

Speaker #7: Got it. Okay. Great. Super helpful. Wahid, the Locus EHEL announcement included some commentary around some of the FAA approvals and such. For the use of directed energy domestically, our understanding of EHEL was that it was going to be a little bit more field-centric, deployed on vehicles, kind of more in overseas, austere environments, etc.

Trevor Walsh: Got it. Okay, great. Super helpful. Wahid, the LOCUST E-HEL announcement included some commentary around some of the FAA approvals and such for using of directed energy domestically. Our understanding of E-HEL was that it was going to be a little bit more field-centric, deployed on vehicles, more overseas, austere environments, et cetera. Can you just maybe give us a little bit of perspective of how that deal can actually help to kickstart efforts here for more homeland defense when, again, I am presuming that those X3s are going to be more, again, forward deployed and just kind of give us maybe a little bit more sense of how one opportunity kind of leads to the next. Thanks.

Speaker #7: Can you just maybe give us a little bit of perspective of how that deal can actually help to kickstart efforts here for more homeland defense? Again, I'm presuming that those X3s are going to be more, again, forward deployed. And just kind of give us maybe a little bit more sense of how one opportunity kind of leads to the next.

Speaker #7: Thanks.

Speaker #2: Sure. Trevor, that’s a great question again. The EHEL program is the first-ever program, to our knowledge, where the U.S. military has awarded a contractor full-rate, high-volume production of a laser weapon system to be institutionalized within the force structure.

Wahid Nawabi: Sure, Trevor. Great question again. The E-HEL program is the first ever program, to our knowledge, where the US military has awarded a contractor a full rate of high volume production of a laser weapon systems to be institutionalized within the force structure. The initial deployment of this is going to be on critical sites that the US Army has. But we believe that this is the beginning of an inflection point. We are actively working with the United States Air Force, United States Navy, United States Marine Corps, and United States Special Operations Command, and also a lot of other international customers. And the first time in the history of the United States military, we witnessed in the last several months the Secretary of War, Mr. Hegseth, the Secretary of the Army, the Secretary of the Navy, who have now become believers in using our LOCUS systems in the field, shooting down drones.

Speaker #2: The initial deployment of this is going to be on critical sites that the U.S. Army has, but we believe that this is the beginning of an inflection point.

Speaker #2: We're actively working with the U.S. Air Force, U.S. Navy, U.S. Marine Corps, and U.S. SOCOM, and also a lot of other international customers. For the first time in history, the United States military—we witnessed in the last several months—the Secretary of War, Mr. Hegseth, the Secretary of the Army, and the Secretary of the Navy have now become believers in using our Locus systems in the field, shooting down drones.

Speaker #2: Shooting down drones in realistic, real-life test environments—this is an inflection point in this business and in this category. The U.S. has been chasing this for three-plus decades.

Wahid Nawabi: Shooting down drones in a realistic, real-life test environment. This is an inflection point in this business and in this category. The US has been chasing this for 3-plus decades. And we are the first company that has actually basically made the "I believe" button for them to push the "I believe" button. And I think it is the inflection point. Yes, initially the program was structured to put on vehicles, moving targets. Immediately after the event that happened in the southern border, the FAA said we got to test these things to make sure it is safe to operate these in the national airspace domestically, continental United States. And our system is the first system, to our knowledge, that has actually been endorsed by the FAA that it is safe to operate in national airspace, and it does not pose harm to commercial airlines and airplanes, manned airplanes.

Speaker #2: And we're the first company that has actually basically made the 'I believe' button, for them to push the 'I believe' button. And so I think it's the inflection point.

Speaker #2: Yes, initially the program was structured to put on vehicles moving targets. Immediately after the event that happened on the southern border, the FAA said, we’ve got to test these things to make sure it’s safe to operate these in the national airspace domestically.

Speaker #2: Continental United States. Our system is the first system, to our knowledge, that has actually been endorsed by the FAA as being safe to operate in national airspace, and it does not pose harm to commercial airlines and airplanes—manned airplanes.

Speaker #2: And so we're very pleased with that because the government and the agencies that are involved in this are moving very, very fast. But it's still the beginning.

Wahid Nawabi: We are very pleased with that because the government and the agencies that are involved in this are moving very fast. It is still the beginning. We expect additional wins, hopefully, over the next several quarters, and we will keep you updated. We are at an inflection point.

Speaker #2: It's still the beginning. We expect additional wins, hopefully over the next several quarters, and we'll keep you updated. We're at an inflection point.

Speaker #7: Perfect. Thanks both.

Trevor Walsh: Perfect. Thanks, Wahid.

Speaker #2: Thank you, Trevor.

Wahid Nawabi: Thank you, Trevor.

Speaker #3: Thank you. Our next question comes from the line of Austin Moeller from Canaccord. Your line is open.

Operator: Thank you. Our next question comes from the line of Austin Moeller from Canaccord. Your line is open.

Speaker #2: Hi. Good afternoon, Wahid and Sean. So just my first question here on the Locus laser weapon system. So, 300 cartel drones have been shot down year to date at the border.

Austin Moeller: Hi, good afternoon, Wahid and Sean. My first question here on the LOCUS laser weapon system. 300 cartel drones have been shot down year to date at the border. The FAA has approved your system. If we think about the DHS budget, for which there's $70 billion in reconciliation that was approved back in June, when do you think that might start coming out in the RFP process? What kind of conversations are you having there?

Speaker #2: And the FAA has approved your system. So, if we think about the DHS budget, for which there’s $70 billion in reconciliation that was approved back in June, when do you think that might start coming out in the RFP process?

Speaker #2: What kind of conversations are you having there?

Wahid Nawabi: Austin, again, a fantastic commentary and question. That DHS opportunity and problem is a significant one. It's not the only one. We're engaged with several customers. As I said, the "I believe" button has been pushed now in several fronts on directed energy laser weapon systems. Especially the sweet spot that we're in, which is between 15 to 30 kilowatt system, is the sweetest spot of the market. Lots and lots of applications. The statistics that you actually shared about 300 cartel drones being shot, we're very proud of. Our systems are working and operating effectively in the southern border and other areas of the country. I think it's an inflection point. When exactly those dollars are going to show up and the awards will happen, it's really tough to determine the timing of that precisely. We're working with them actively.

Speaker #5: Austin, again, a fantastic commentary and question. That DHS opportunity and problem is a significant one, but it's not the only one. We're engaged with several customers.

Speaker #5: As I said, the 'I believe' button has been pushed now on several fronts regarding directed energy laser weapon systems. And especially the sweet spot that we're in, which is between 15- to 30-kilowatt systems, is the sweet spot of the market.

Speaker #5: Lots and lots of applications. The statistics that you actually shared about 300 cartel drones being shot, we're very proud of. Our systems are working and operating effectively on the southern border and in other areas of the country.

Speaker #5: And I think it's an inflection point. When exactly those dollars are going to show up in the awards will happen? It's really tough to determine the timing of that precisely.

Speaker #5: We're working with them actively. The customers are trying to move fast, but they're literally writing requirements and holding competitions as we're building and expanding capacity.

Wahid Nawabi: The customers are trying to move fast, but they are literally writing requirements, holding competitions as we're building and expanding capacity. It's a multifaceted challenge and initiative. I think we're positioned very well, and we'll keep you updated as we go forward. There are several customers they're working with beyond just United States Army and DHS. That should resolve to some additional wins over the next several quarters for AV.

Speaker #5: It's a multifaceted challenge and an initiative, but I think we're positioned very well, and we'll keep you updated as we go forward. There are several customers that we're working with beyond just the U.S. Army and DHS.

Speaker #5: That should result in some additional wins over the next several quarters for AV.

Speaker #2: Okay. And then are you able to comment on the build rate ramp for Red Dragon, as well as facility expansion and CAPEX as deployed there for that line, and the potential for the U.S. military to maybe pull some of those Red Dragon orders forward, maybe from some other customers, just given the range could be used in Iran?

Austin Moeller: Okay. Are you able to comment on the build rate ramp for Red Dragon as facility expansion and CapEx is deployed there for that line and the potential for the U.S. military to maybe pull some of those Red Dragon orders forward, maybe from some other customers, just given the range could be used in Iran?

Speaker #5: So I can only comment on this briefly and at a high level. Austin, you're absolutely right. We have a winning solution that is very unique in its capability and its efficacy.

Wahid Nawabi: I can only comment to this briefly and at a high level, Austin. You are absolutely right. We have a winning solution that is very unique in its capability and its efficacy, especially given the kind of conflicts that are going on and threats that are globally. Lots of engagements and demand for that. We are ramping up production. We have designed a product to get into the thousands of units a year production.

Speaker #5: Especially given the kind of conflicts that are going on and the threats that exist globally. There are lots of engagements and demand for that. We're ramping up production.

Speaker #5: We have designed a product to get into the thousands of units a year production. We're ramping that up actively today. I'm not able to comment specifically on where we are because of the sensitivity of that mission and customers.

Wahid Nawabi: We are ramping that up actively today. I am not able to comment specifically on where we are because of the sensitivity of that mission and customers. What I can tell you that we are making great progress, and we should have updates for you in the near future. You are absolutely right. That capability is a necessity, not a nice-to-have. It is a must-have in the type of conflicts we see in the world, and we are engaged with those customers. They are trying to move quite aggressively, but it still takes time, and it is just a matter of just hopefully some timing that we are going to make progress. We are not waiting for the customer contracts and progress there.

Speaker #5: What I can tell you is that we're making great progress, and we should have updates for you in the near future. You're absolutely right—that capability is a necessity, not a nice-to-have.

Speaker #5: It's a must-have. And given the type of conflicts we see in the world, we're engaged with those customers. They're trying to move quite aggressively, but it still takes time.

Speaker #5: And it's just a matter of, hopefully, some timing that we're going to make progress. We're not waiting for the customer contracts and progress there.

Speaker #5: We're, in parallel, actively—based on very strong signals from our customers and engagements with them—ramping up production. We're building units, and we're ready to scale this.

Wahid Nawabi: We are, in parallel, actively, based on very strong signals from our customers and engages with them, we are ramping up production, we are building units, and we are ready to scale this, and we are actually scaling it right now as we speak. This is the reason why we are investing in new facilities, buying long-lead material, building units in stock because we know that the demand is coming. We know our customers need it. It is just a matter of how fast they can get us a contract.

Speaker #5: We are actually scaling it right now, as we speak. This is the reason why we're investing in new facilities, buying long-lead material, and building units in stock—because we know that the demand is coming.

Speaker #5: We know our customers need it. It's just a matter of how fast they can get into contract.

Speaker #2: Excellent. Thanks for filling me in on everything.

Austin Moeller: Excellent. Thanks for filling me in on everything.

Speaker #5: Thank you, Austin.

Wahid Nawabi: Thank you, Austin.

Speaker #3: Thank you. Our next question comes from Lionel Cash and Keeler from BNP Paribas. Your line is open.

Operator: Thank you. Our next question comes from the line of Cashen Keeler from BNP Paribas. Your line is open.

Speaker #4: Yeah, hi. Thanks for the time. Obviously, you guys had a solid first quarter result here on revenue. But with you still expecting 45% of revenue to come in the first half, that implies about a $40 million step down in revenue in Q2, relative to what you guys said over the last call about the Q1/Q2 split if we just take things at the midpoint.

Cashen Keeler: Yeah. Hi. Thanks for the time. Obviously, you guys had a solid Q1 result here on revenue, but with you still expecting 45% of revenue to come in the H1, that implies about a $40 million step down in revenue in Q2 relative to what you guys said on the last call about the Q1 Q2 split if we just take things at the midpoint. Just kind of wanted to unpack that and see if there is any particular reason for that.

Speaker #4: So I just kind of wanted to unpack that and see if there's any particular reason for that.

Speaker #2: Yeah, yeah, sure. Great question. Yeah, we're still holding to our 45/55 split. We've got a fantastic backlog. We see the back half of the year really being an increase in the overall volumes for our revenue.

Sean Woodward: Well, Kashy. Great question. We are still holding to our 45/55 split. We got fantastic backlog. We see the H2 really being an increase in the overall volumes for our revenue. We did really good in Q1. We are able to deliver above our expectations. But the H1, we are still tracking to the 45% and 55% in the H2. Well supported by our visibility at 86% and overall increased volumes in Q3 and Q4.

Speaker #2: We did really well in Q1. We were able to deliver above our expectations. But for the first half of the year, we're still tracking to the 45% and 55% in the back half of the year.

Speaker #2: Well supported by our visibility at 86%, and overall increased volumes in Q3 and Q4.

Speaker #4: Got it. Okay, that's helpful. And then a couple of weeks ago, there was a memo from the Deputy Secretary of War regarding greater cost transparency and basically setting margins across the industrial base.

Cashen Keeler: Got it. Okay. That is helpful. A couple of weeks ago, there was a memo from the Deputy Secretary of Defense regarding greater cost transparency and basically setting margins across the industrial base. I guess, how can we think about that and what impact it might have on your ability to maintain your margin edge over, say, legacy defense businesses and hopefully expand margins over time towards your 2030 targets?

Speaker #4: So, I guess, how can we think about that and what impact it might have on your ability to maintain your kind of margin edge over, say, legacy defense businesses, and ultimately expand margins over time towards your 2030 targets?

Speaker #5: So, Cash, we are absolutely supportive of the government's effort in this area. You know as well as we do that AV's business model and strategy is incredibly unique, enticing, and compelling.

Sean Woodward: Kashan, we are absolutely supportive of the government's effort in this area. You know as well as we do that AeroVironment's business model and strategy is incredibly unique and enticing and compelling. That particular directive is obviously directed to the entire market and all the suppliers, but we see it more directed to the much larger primes where the department has significant, serious challenges on visibility to their supply chain, their cost models, their cost structures, their rate structures, et cetera. We do not see that to be an impact for us whatsoever. We welcome it. It is still very premature. It is an audacious task that the government is going to be taking on. Not easy to actually implement such an effort. I really support them on that up front. We welcome it. We do not see that as a problem. We welcome it. We are ready. We are working with them.

Speaker #5: That particular directive is obviously directed to the entire market and all the suppliers. But we see it more as directed to the much larger primes, where the department has significant, serious challenges.

Speaker #5: On visibility into their supply chain, their cost models, their cost structures, their rate structures, etc., etc., we don't see that to be an impact for us whatsoever.

Speaker #5: We welcome it. It's still very premature. It's an audacious task that the government is going to be taking on—not easy to actually implement such an effort.

Speaker #5: I really, really support them on that upfront. We welcome it. We do not see that as a problem. We welcome it. We're ready. We're working with them.

Speaker #5: We spend a lot of our own money on R&D—IRAD, internal R&D—to develop our products as commercial products. This is the AV business model that we've been working and executing successfully for multiple decades.

Sean Woodward: We spend a lot of our money on R&D, IRA, internal R&D, to develop our products as commercial products. This is the AeroVironment business model that we have been working and executing successfully for multiple decades, ever since we have been public. It is almost 20 years now that we have been doing this. It is nothing new to us. We welcome it. I do not see it as an issue, and it is more targeted towards much larger primes where this problem is much more acute and a lot more dollars that are sloshed around on lots of munitions and space programs and other things.

Speaker #5: Ever since we've been public—it's almost 20 years now that we've been doing this—and so, it's nothing new to us. We welcome it.

Speaker #5: I don't see it as an issue. And it's more targeted towards much larger primes, where this problem is much more acute and a lot more dollars are being sloshed around on lots of munitions, space programs, and other things.

Speaker #4: All right. Thank you. I'll turn it over.

Cashen Keeler: All right. Thank you. Turn it over.

Speaker #5: Thank you, Cash.

Sean Woodward: Thank you, Kashan.

Speaker #3: Thank you. Our next question comes from Brian Dobson of Clear Street. Your line is open.

Operator: Thank you. Our next question will come from the line of Brian Dobson from Clear Street. Your line is open.

Speaker #6: Yeah, thanks very much for taking my question. So, at the risk of beating a dead horse, I'd like to ask one more question on Locus.

Brian Dobson: Yeah. Thanks very much for taking my question. At the risk of beating a dead horse, I would like to ask one more question on LOCUST. You gave some very exciting commentary about perhaps that product being adopted across military branches in a variety of venues. You also signed an international contract. Can you speak a little bit to the demand there? Perhaps how quickly you see international sales scaling in comparison with what seems to be a pretty steep ramp in the United States.

Speaker #6: You gave some very exciting commentary about perhaps that product being adopted across military branches in a variety of venues. You also signed an international contract. Can you speak a little bit to the demand there, and perhaps how quickly you see international sales scaling in comparison with what seems to be a pretty steep ramp in the United States?

Speaker #5: So Brian, I'm very optimistic about the international demand for our Locus systems. I tend to believe that the revenue may accelerate even faster internationally, given the kind of challenges that a lot of our allies have around the world with drone attacks.

Wahid Nawabi: Brian, I am very optimistic about the international demand for our LOCUST systems. I tend to believe that the revenue may accelerate even faster internationally, given the kind of challenges that a lot of our allies have around the world with drone attacks. Look at what is happening in Eastern Europe. Look what is happening in Ukraine. Look what is happening around the Black Sea, Persian Gulf, Operation Epic Fury, Middle East, Asia Pacific. Prime urgent needs for these countries to protect themselves. They just do not have the magazine depth to be able to withstand the type of attacks they are getting from some of our adversaries, such as Iran and others, and Russia. I think, this was part of our strategy from the beginning because we know the sweet spot for counter-UAS is directed energy laser weapon systems.

Speaker #5: Look at what's happening and Eastern Europe. Look what is happening in Ukraine. Look what's happening in around the Black Sea, Persian Gulf, Epic Fury, Middle East, Asia Pacific.

Speaker #5: Prime, prime, prime urgent needs for these countries to protect themselves. And they just don't have the magazine depth to be able to withstand the type of attacks they're getting from some of our adversaries, such as Iran and others, and Russia.

Speaker #5: So, I think this was part of our strategy from the beginning, because we know the sweet spot for counter-UAS is directed energy laser weapon systems.

Speaker #5: And we've got the world's best solution. It's performing, it's working, and we're scaling it. As for exactly when those awards are going to come in, I think it's very difficult to predict that.

Wahid Nawabi: We have the world's best solution. It is performing, it is working, and we are scaling it. Exactly when those awards are going to come in, I think it is very difficult to predict that. But we do have several engagements, and I think those are going to continue to come in, and we will keep you updated. The key was to get the inflection point, the United States Army to endorse it, select us, officially say that we are going to deploy this, Federal Aviation Administration to approve it and support it and endorse it, and then now everyone else is going to follow, not only domestically, but also internationally. It is playing according to our strategy just perfectly, nearly perfectly. While that is happening in the market, we are in parallel, ramping up production, building systems as fast as we can. That is at scale time.

Speaker #5: But we do have several engagements, and I think those are going to continue to come in, and we'll keep you updated. The key was to get the inflection point—the U.S. Army to endorse it, select us officially, say that we're going to deploy this, the FAA to approve it and support it, and endorse it.

Speaker #5: And now everyone else is going to follow—not only domestically but also internationally. It's playing according to our strategy just perfectly—nearly perfectly.

Speaker #5: And while that's happening in the market, we're in parallel ramping up production, building systems as fast as we can. And that just takes time.

Speaker #3: Excellent. Thanks very much.

Brian Dobson: Excellent. Thanks very much.

Speaker #5: Thank you, Brian.

Wahid Nawabi: Thank you, Brian.

Speaker #3: Thank you. Our next question comes from Clark Jeffries at Piper Sandler. Your line is open.

Operator: Thank you. Our next question comes from the line of Clarke Jeffries from Piper Sandler. Your line is open.

Speaker #4: Hello. Thank you for taking the question. I guess I'll start with Sean. I'm wondering if you could comment on the major drivers of cash outperformance in the quarter.

Clarke Jeffries: Hello. Thank you for taking the question. I guess I will start with Sean. Wondering if you could comment on the major drivers of cash outperformance in the quarter, what changed, in your view, and how you see receivables growing or shrinking over the coming quarters. Is the CR explicitly considered in your full year guidance for negative free cash flow?

Speaker #4: What change do you see in your view, and how do you see receivables growing or shrinking over the coming quarters? And then, is the CR explicitly considered in your four-year guidance for negative free cash flow?

Speaker #2: Yeah, Clark, great question on the cash. We had positive operating cash flow in the first quarter of $13 million—very favorable on that.

Sean Woodward: Yeah, Clark, great question on the cash. We had a positive operating cash flow in the first quarter, $13 million, very favorable on that. We are really working to manage the cash as best we can while also strategically investing in inventory to get ahead of some of these long lead items and get that in stock to support rapid delivery of our products. We are anticipating managing the cash from a free cash flow perspective for the full year being slightly negative, driven mainly from the CapEx. Managed working capital, favorable growth in EBITDA and net income, but really, the CapEx is going to drive us to the current year increase in CapEx, driving a free cash flow negative. We do not anticipate that carrying into next year.

Speaker #2: We're really working to manage the cash as effectively as we can, while also strategically investing in inventory to get ahead of some of these long lead items and get that in stock to support rapid delivery of our products.

Speaker #2: We're anticipating managing the cash from a free cash flow perspective for the full year being slightly negative, driven mainly from the CapEx. Managed working capital, favorable growth in EBITDA and net income, but really the CapEx is going to drive us to that.

Speaker #2: Current year increase in CapEx is driving free cash flow negative. We don't anticipate that carrying into next year. We expect to see our capital levels return to a more normalized level, as this is an inflection point in our production capacity expansion in fiscal year '27.

Sean Woodward: We expect to see our capital levels return to more normalized level as this is an inflection point on our production capacity expansion in fiscal year 2027. Regarding your second question on the CR, that is factored into our guidance. We stated that in the last call. Things have progressed pretty much exactly as we expected. A short-term CR followed by an approved defense budget. That is what we are expecting to happen in the December timeframe, and our guidance currently reflects that.

Speaker #2: Regarding your second question on the CR, that is factored into our guidance. We stated that on the last call. Things have progressed pretty much exactly as we expected.

Speaker #2: A short-term CR, followed by an approved defense budget—that’s what we’re expecting to happen in the December timeframe. Our guidance currently reflects that.

Speaker #4: Perfect. And then if I could just ask a follow-up—just with your announcement around a joint venture established in Greece—I was wondering if you could just share an overview of where you're at with localizing production in Europe and where you intend that to go.

Clarke Jeffries: Perfect. If I could just ask a follow-up. Wahid, you had this announcement around a joint venture established in Greece. I was wondering if you could just share an overview of where you are at with localizing production in Europe, where you intend that to go. Sounds like any kind of CapEx requirement is already considered in guidance, but just curious, as we think about the maturation of unmanned systems, how many of these 20 countries that might be targets for foreign sales might want to move forward with an industrial workshare agreement or localized production? Thank you.

Speaker #4: It sounds like any kind of CapEx requirement is already considered in guidance. But just curious, as we think about the maturation of unmanned systems, how many of these 20 countries that might be targets for foreign sales might want to move forward with an industrial work share agreement or localized production?

Speaker #4: Thank you.

Speaker #5: You're welcome, Clark. So we're engaged with several countries. We've announced the Greece joint venture. We've announced our presence in the UK. We already have a presence in Germany.

Wahid Nawabi: You are welcome, Clarke. We are engaged with several countries. We have announced a Greece joint venture. We have announced our presence in UK. We already have presence in Germany. We have a joint venture, a small one in Turkey. We also have efforts that we announced in terms of our teaming agreements and announcements in Taiwan. You are going to continue to see more and more of these over the next several quarters and years to come, both in Europe as well as in Asia-Pacific and also in Middle East. Those are the three focus areas. All of Europe, Eastern and Western, plus Middle East, plus Asia-Pacific. And then those countries are very specific.

Speaker #5: We have a joint venture—a small one—in Turkey. We also have efforts that we announced in terms of teaming agreements and partnerships in Taiwan.

Speaker #5: You're going to continue to see more and more of these over the next several quarters and years to come, both in Europe as well as in Asia-Pacific and also in the Middle East.

Speaker #5: Those are the three focus areas: all of Europe—Eastern and Western—plus the Middle East, plus Asia Pacific. And then those countries are very specific.

Speaker #5: The reason for that is because the demand, and the government's desire for our systems, is quite strong. And it requires some level of local content and local presence.

Wahid Nawabi: The reason for that is because the demand and the government's desire for our systems is quite strong, and it requires some level of local content and local presence, both in terms of engaging with those customers, but also in terms of actually producing subsystems or doing final assembly. The Greek military has made public statements that they are going to be procuring a lot of loitering munitions, and specifically Switchblade is one of those particular items. And it is in their government's budget process. It has gone through their parliament, and I have met with their top leaders, and it is actually progressing quite well. That is just not the only one, though. We have similar engagements in other parts of Europe and Asia-Pacific and in Middle East. And I think you are going to continue to see us progress there as part of our international expansion and growth.

Speaker #5: Both in terms of engaging with those customers, but also in terms of actually producing subsystems or doing final assembly. The Greek military made public statements that they're going to be procuring a lot of loitering munitions, and specifically, Switchblade is one of those particular items.

Speaker #5: And it's in their government's budget process. It's gone through their parliament, and I've met with their top leaders. It's actually progressing quite well.

Speaker #5: And so that's not the only one, though. We have similar engagements in other parts of Europe, in Asia-Pacific, and in the Middle East.

Speaker #5: And I think you're going to continue to see us progress there. It's part of our international expansion and growth, and you're going to see more such announcements over the next several quarters and years to come.

Wahid Nawabi: You are going to see more such announcements that happen over the next several quarters and years to come.

Speaker #4: Thank you very much.

Clarke Jeffries: Thank you very much.

Speaker #5: You're welcome, Clark.

Wahid Nawabi: You are welcome, Clarke.

Speaker #3: Thank you. Our next question will come from the line of Gavin Parsons from UBS. Your line is open.

Operator: Thank you. Our next question will come from the line of Gavin Parsons from UBS. Your line is open.

Speaker #6: Thank you. Good evening.

Gavin Parsons: Thank you. Good evening.

Speaker #5: Good evening, Gavin.

Wahid Nawabi: Good evening, Gavin.

Speaker #6: Well, you've talked about needing to demonstrate capacity to unlock awards. I mean, is that what we're starting to see in these bookings? Or do you think bringing Salt Lake and Albuquerque, etc.—

Gavin Parsons: Wahid, you've talked about needing to demonstrate capacity to unlock awards. I mean, is that what we're starting to see in these bookings, or do you think bringing Salt Lake and Albuquerque, et cetera, online will unlock more?

Speaker #6: online will unlock more?

Speaker #5: It's a combination of both, yes. The current investments that we're making in all facilities, and what we've made over the last several quarters and even last year, has already yielded very strong growth, right?

Wahid Nawabi: It's a combination of both. Yes. The current investment that we're making in all of our facilities, and we've made over the last several quarters and even last year, has already yielded very strong growth, right? When Ukraine war started, we aggressively expanded the production of our Switchblade facilities. We aggressively increased the production of our Puma systems for Ukraine. At the same time, when additional demand was needed for, we built a Salt Lake City facility. So we've gotten awards for that. When we developed the P550, we expanded facilities for P550. United States Army gave us an award now. Titan, the same thing. We've increased the capacity for our counter-UAS systems.

Speaker #5: With the Ukraine war started, we aggressively expanded the production of our Switchblade facilities. We aggressively increased the demand and the production of our Puma systems for Ukraine.

Speaker #5: And then, at the same time, when additional demand was needed for, we built the Salt Lake City facility. So we've gotten awards for that.

Speaker #5: When we developed the P550, we expanded facilities for the P550. The U.S. Army gave us an award then. Similarly, we've increased the capacity for counter-UAS systems.

Speaker #5: There is a direct correlation and link between us investing and showing our customers that we can deliver, and producing and delivering on time a reliable product to the customer, and getting a lion's share of their business.

Wahid Nawabi: There is a direct correlation and link between us investing and showing our customers that we can deliver and producing and delivering on time, and reliable product to the customer, and getting a lion's share of their business. Many people can claim that they have it or they can do it, but unless they demonstrate, it's not the same thing. What sets us apart is that we continue to deliver, execute, and demonstrate to our customers that we're a safe bet. I think that's been working for us. Additional capacity expansions that we're making now on LOCUST, on Red Dragon, on Freedom Eagle 1, all of these are going to yield more success and awards over the next several quarters, in my opinion, because we're talking to those customers and they're engaged with us, and they want us to do that.

Speaker #5: Many people can claim that they have it or they can do it, but unless they demonstrate it, it's not the same thing. What sets us apart is that we continue to deliver, execute, and demonstrate to our customers that we're a safe bet.

Speaker #5: And so I think that's been working for us. Additional capacity expansions that we're making now on Locust, on Red Dragon, on Free, and Eagle 1—all of these are going to yield more success in awards over the next several quarters, in my opinion, because we're talking to those customers, and they're engaged with us, and they want us to do that.

Speaker #5: And so it solves the government's problem because they don't have budgets that are long-term, and when they get the money, they want to give it to people that can deliver right away.

Wahid Nawabi: It solves the government's problem because they don't have budgets that are long-term, and when they get the money, they want to give it to people that can just deliver right away or quickly and reliably. That's AV, is we're one of the top companies who can do that actually successfully, and we've demonstrated it.

Speaker #5: Or quickly. And reliably. And that's AV. We're one of the top companies who can do that actually successfully, and we've demonstrated it.

Speaker #6: Got it. Okay. And then just back to Q2 kind of guidance. Appreciate it's early in the year and there's still a lot of budget unknowns.

Gavin Parsons: Got it. Okay. Just back to Q2 kind of guide. Appreciate it is early in the year and there is still a lot of budget unknowns, but is there anything specific in Q2 that steps down EBITDA even while revenue increases?

Speaker #6: But is there anything specific in Q2 that steps down EBITDA, even while revenue increases?

Speaker #5: Yeah. So, Q2, the way we've laid this out with our revenue profile at the 45-55 split, the back half of the year will have more favorable volume and improved sales mix.

Sean Woodward: Yeah. So Q2, the way we have laid this out with our revenue profile at the 45/55, the back half of the year being a more favorable volume and improved sales mix, that is what is driving the EBITDA in the second half of the year. H1, we delivered really strong in Q1, and in Q2 we see a little bit of a step down on the, even though the volume is up higher, the overall sales mix is slightly below, and our increased IR&D we expect to tick up in Q2.

Speaker #5: That's what's driving the EBITDA in the second half of the year. In the first half of the year, we're delivering really strong in Q1, and in Q2 we see a little bit of a step down; even though the volume's up higher, the overall sales mix is slightly below.

Speaker #5: And then our increased IRA is to be expected to tick up in Q2.

Speaker #6: Got it. Thank you.

Gavin Parsons: Got it. Thank you.

Speaker #5: You're welcome, Gavin.

Wahid Nawabi: You are welcome, Gavin.

Speaker #3: Thank you. And our next question will come from the line of Ron Epstein from Bank of America. Your line is open.

Operator: Thank you. Our next question will come from the line of Ron Epstein from Bank of America. Your line is open.

Speaker #4: Hi everyone, this is Andrew on for Ron. Thanks for taking our questions. I just wanted to follow up on a question, folks. Hey, Wahid.

[Analyst] (Bank of America): Hi, everyone. This is Andrew on for Ron. Thanks for taking our questions. I just wanted to follow up on

Wahid Nawabi: Hi, Andrew.

[Analyst] (Bank of America): a question focusing. Hey, Wahid. I just wanted to focus on Greece for a second. There was a question a few moments ago on it, about the AV Eagle joint venture. You guys announced that in August, and then this week Greece announced that a multi-billion dollar missile defense deal was signed. I was wondering, what are you guys seeing there in terms of demand specifically for directed energy systems given the recent LOCUST wins? Is there a place for LOCUST in Greece's new Achilles Shield system?

Speaker #4: Yeah, I just wanted to focus on Greece for a second. There was a question a few moments ago about the AV Eagle joint venture.

Speaker #4: You guys announced that in August, and then this week Greece announced that a multi-billion-dollar missile defense deal was signed. So I was wondering, what are you guys seeing there in terms of demand, specifically for directed energy systems, given the recent Locust wins?

Speaker #4: Is there a place for LOCUST in Greece's new Achilles Shield system?

Speaker #5: Yeah, so, Andrew, we're engaged very closely with the Greek military on several fronts. I have personally met multiple times with the Chief of Defense.

Wahid Nawabi: Yeah. Andrew, we are engaged very closely with the Greek military on several fronts. I have personally met multiple times with their chief of defense, and the gentleman who is very reputable, very credible and very focused. They are very laser-focused on making sure that they adopt a large portion of their procurement to be things such as loitering munition and specifically Switchblade. So we are engaged with that. There is a competition. I cannot comment specifically on it, but they do have funding in the budget that has gone through their parliament for approval. They have made public announcements on that and statements, and it has been well documented in that regard. In terms of their laser weapon systems and the need for that, we are already engaged with them. The existing contract you just described is something a little bit specific.

Speaker #5: And the gentleman, who was very reputable, very credible, and very focused—they're very laser-focused on making sure that they adopt a large portion of their procurement to be things such as loitering munition, and specifically Switchblade.

Speaker #5: So, we're engaged with that. There's a competition. I can't comment specifically on it, but they do have funding in the budget that's gone through their parliament.

Speaker #5: And for approval, they've made public announcements on that and statements, and it's been well documented in that regard. In terms of their laser weapon systems and the need for that, we are engaged with them.

Speaker #5: The existing contract that you described is something a little bit specific. It does not include our Locust today, but it could easily expand into that.

Wahid Nawabi: It does not include our LOCUST today, but it could easily expand into that, and they are absolutely interested in that. They were more waiting for the US Army to select on EHEL. That EHEL announcement and success most likely going to instigate many allies, not just Greece, to become more bullish and aggressive in their effort to procure systems such as LOCUST. I feel really good about it. I think we engage with several countries on that front, not just Greece. But the main focus on Greece today is about products such as Switchblade and our JUMP 20 and other systems. The LOCUST systems are a little bit further behind on that front with Greece specifically.

Speaker #5: And they're absolutely interested in that. They were more waiting for the U.S. Army to select on e-health. That e-health announcement and success is most likely going to actually instigate many allies, not just Greece, to become more bullish and aggressive in their effort to try to procure systems such as Locust.

Speaker #5: I feel really good about it. I think we're engaged with several countries on that front, not just Greece, but the main focus on Greece today is about products such as Switchblade, our Jump 20, and other systems.

Speaker #5: And the Locust systems are a little bit further behind on that front, with Greece specifically.

Speaker #4: Got it. I appreciate that color. And I guess just a quick follow-up: Was the recent international contract kind of a similar dynamic, where the customer was waiting to see validation from the U.S. Army?

[Analyst] (Bank of America): Got it. I appreciate that color. I guess just a quick follow-up. Was the recent international contract a similar dynamic where the customer was waiting to see validation from the US Army?

Speaker #5: The answer is yes, Andrew. Validations from two fronts: the U.S. Army, of course, because U.S. military approvals and program-of-record selection are the golden standard with our allies in general.

Wahid Nawabi: The answer is yes, Andrew. Validation is from two fronts. The US Army, of course, because US military and approvals and program record selection is the golden standard of our allies in general. You have seen that in our 20-plus year track record. When we win program records with the US Army for Puma, for Raven, for Switchblade, for Titan, whatever product we win programs with the US military, it almost always translates into adoption internationally with not one ally, but several of them. So that was one. The second key criteria for them was also for them to come to United States, go to the field, test, and push the I believe button by shooting down drones themselves in the field. They did that. We demonstrated it. Our system worked while the competitive systems are not working, and therefore they gave us the award.

Speaker #5: You have seen that in our 20-plus-year track record. When we win program records with the U.S. Army for Puma, for Raven, for Switchblade, for Titan—wherever product we win programs with the U.S. military, it almost always translates into adoption internationally with not one ally, but several of them.

Speaker #5: So that was one. The second key criteria for them was also for them to come to the United States, go to the field, test, and push the— I believe—button by shooting down drones themselves in the field.

Speaker #5: They did that. We demonstrated it. Our system worked, while the competitive systems are not working, and therefore they gave us the award. We expect that to continue with additional customers.

Wahid Nawabi: We expect that to continue with additional customers. That has always been our strategy to just basically demonstrate and deliver. If we do that, obviously adoption will occur. That is consistent with our strategy with LOCUS as well.

Speaker #5: That has always been our strategy: to just basically demonstrate and deliver. And if we do that, obviously, adoption will occur. And that's consistent with our strategy with Locust as well.

Speaker #4: Gotcha. I appreciate the detail.

[Analyst] (Bank of America): Got you. I appreciate the detail.

Speaker #5: You're welcome, Andrew.

Wahid Nawabi: You are welcome, Andrew.

Speaker #3: Thank you. This concludes the question-and-answer session. I would now like to turn it back over to Denise for any closing remarks.

Operator: Thank you. This concludes the question and answer session. I would now like to turn it back over to Denise for any closing remarks.

Speaker #1: Thank you once again for joining today's conference call and for your interest in AV. As a reminder, an archived version of this call, SEC filings, and relevant news can be found in the Investor section of our website.

Denise Pacioni: Thank you once again for joining today's conference call and for your interest in AeroVironment. As a reminder, an archived version of this call, SEC filings, and relevant news can be found under the Investors section of our website. We hope you enjoy the rest of your evening, and we look forward to speaking with you again following next quarter's results.

Speaker #1: We hope you enjoy the rest of your evening, and we look forward to speaking with you again following next quarter’s results.

Speaker #2: Goodbye.

Gavin Parsons: Goodbye.

Denise Pacioni: Goodbye.

Operator: Thank you for your participation in today's conference. This does conclude the program. You may now disconnect. Everyone, have a great day.