EPS of $-1.44 decreased by 289.5% from previous year
Net income of -67.37M
"We achieved another record first quarter with revenue of nearly $455 million." - Wahid Nawabi
AeroVironment Inc (AVAV) Q1 FY2026 Results: Record Quarter, Blue Halo Integration, HALO Platform Launch, and Multibillion-Dollar Defense Backlog Opportunity
Executive Summary
AeroVironment reported a record start to its fiscal year with a QQ1 2026 revenue run-rate that reflects the integration of the Blue Halo acquisition and a broad, defense-led growth trajectory. Management highlighted nearly $455 million in quarterly revenue, bookings of roughly $400 million, and funded backlog of $1.1 billion, with unfunded backlog at $3.1 billion, underscoring a robust demand pipeline across UAS, counter-UAS, directed energy, space technologies, and cyber solutions. The quarter benefited from Blue Halo’s contribution and the rapid ramp of high-priority programs, including the Space Laser Communications terminal award and the FE1 missile development program, positioning AeroVironment to scale production to meet near- to mid-term demand. Guidance for FY2026 remains intact at $1.9–$2.0 billion in revenue and adjusted EBITDA of $100–$320 million, with 82% visibility to the midpoint.
From a profitability perspective, GAAP gross margin declined to 21% in QQ1 2026, driven by a higher services mix (31% of revenue) and elevated intangible amortization versus the prior year, while adjusted gross margin was 29% (down from 45% in the prior year). Adjusted EBITDA was $56.6 million (approximately 16% of revenue), reflecting the Blue Halo contribution and the posture of higher R&D and integration costs during a period of rapid capacity expansion. The company expects gross margins to improve through the year, guided to the mid-30s by Q4 and an average in the low-30s for FY2026, as synergies from the Blue Halo combination take effect and the mix shifts toward higher-value, production-stage programs.
Strategically, AeroVironment reaffirmed its leadership in defense-technology platforms across autonomous systems and space, cyber, and directed energy (SCDE). Halo, the open, software-defined ecosystem, is positioned to broaden the addressable market by enabling interoperability and third-party integrations, potentially accelerating international and domestic adoption. Management also highlighted a diversified manufacturing footprint (12 states) and a Salt Lake City expansion to lift long-term capacity beyond FY2027, signaling a deliberate plan to scale with demand. Overall, the QQ1 results validate AeroVironment’s multi-domain portfolio and growth strategy, even as the near-term profitability trajectory reflects the integration and ramp costs associated with a major acquisition.
Key Performance Indicators
Revenue
313.53M
QoQ: 29.43% | YoY:65.47%
Operating Income
-69.27M
QoQ: -601.35% | YoY:-400.41%
Net Income
-67.37M
QoQ: -504.28% | YoY:-418.29%
EPS
-1.44
QoQ: -344.07% | YoY:-289.47%
Revenue Trend
Margin Analysis
Key Insights
QQ1 2026 revenue reported by management as nearly $455 million, reflecting the first-quarter contribution from the Blue Halo integration and strong demand across autonomous systems (AXS) and space, cyber, and directed energy (SCDE).
Bookings for the quarter were nearly $400 million.
Funded backlog: $1.1 billion at quarter-end; unfunded backlog: $3.1 billion (management notes visibility to the midpoint guidance is 82%).
Segment mix (QQ1 2026): Autonomous Systems (AXS) revenue $285 million (+22% YoY pro forma); SCDE revenue $169 million (+12% YoY pro forma).
GAAP gross margin: 21% for QQ1 2026, down from the prior year due to higher service mix (31% of revenue) and elevated intangible amortization and non-cash items (+$33.7 million).
Financial Highlights
Revenue and backlog
- QQ1 2026 revenue reported by management as nearly $455 million, reflecting the first-quarter contribution from the Blue Halo integration and strong demand across autonomous systems (AXS) and space, cyber, and directed energy (SCDE).
- Bookings for the quarter were nearly $400 million.
- Funded backlog: $1.1 billion at quarter-end; unfunded backlog: $3.1 billion (management notes visibility to the midpoint guidance is 82%).
- Segment mix (QQ1 2026): Autonomous Systems (AXS) revenue $285 million (+22% YoY pro forma); SCDE revenue $169 million (+12% YoY pro forma).
Profitability and margins
- GAAP gross margin: 21% for QQ1 2026, down from the prior year due to higher service mix (31% of revenue) and elevated intangible amortization and non-cash items (+$33.7 million).
- Adjusted gross margin: 29% for QQ1 2026, with expectations to rise to the mid-30s by Q4 and an average of the low 30s for FY2026.
- Adjusted EBITDA: $56.6 million in QQ1 2026, or 16% of revenue (in line with guidance). GAAP net income: a loss of ~$57.4 million for QQ1 2026.
- R&D expense: $33.1 million (7.3% of revenue), consistent with a shift to near-term investments in growth programs and Halo ecosystem integration.
- SG&A (adjusted, excluding intangibles): $65.2 million; as a percentage of revenue, 14.3% versus 17.3% in FY2025, reflecting synergies from the Blue Halo integration.
Liquidity, balance sheet, and cash flow
- Cash and investments at quarter-end: $722 million.
- Total debt: $829.7 million; net debt: $143.9 million (cash ~ $686 million vs. debt ~ $830 million).
- Cash flow: net cash provided by operating activities was negative at about -$123.7 million; free cash flow: -$123.7 million for QQ1; cash at end of period: $685.8 million.
- Financing activity: ~$1.645 billion in net financing activities in QQ1, including ~$1.7 billion raised, largely to fund the Blue Halo acquisition and pay down related debt; this rebalanced the balance sheet toward a more scalable capital structure for growth.
Backlog and visibility
- Funded backlog at period-end: $1.1 billion.
- Unfunded backlog: $3.1 billion, with management noting that some of this is tied to funding that Congress and the administration plan to disburse during FY2026; management estimates 82% visibility to the revenue midpoint.
Guidance and outlook
- FY2026 revenue guidance remains $1.9–$2.0 billion.
- Adjusted EBITDA guidance: $100–$320 million.
- Non-GAAP diluted earnings per share guidance: $3.60–$3.70.
- The company expects gross margins to improve toward the mid-30s by year-end as mix shifts toward higher-margin programs and synergies from Blue Halo begin to materialize.
Key management takeaways
- The integration of Blue Halo has expanded AeroVironment’s portfolio into space technologies, counter-UAS, directed energy, electronic warfare, and cyber—creating a broad, demand-fueled growth runway with multiple multibillion-dollar opportunities (e.g., laser communications, LOCUST, FE1, LRR).
- Halo software ecosystem: HALO is hardware-agnostic and designed to interoperate across AeroVironment and BlueHalo platforms, with an API-friendly, open architecture that allows third-party integration and developer ecosystems.
- Production capacity expansion: A Salt Lake City facility is under development to significantly increase manufacturing capacity beyond FY2027, and manufacturing sites are already spread across 12 states to increase resilience and scalability.
Backlog quality and conversion risk
- Backlog continues to be a meaningful growth driver, with funded backlog of $1.1B and unfunded backlog of $3.1B. The company expects significant second- and third-quarter bookings against recently announced contracts and longer-cycle funding approvals, which could meaningfully lift funded backlog in the near term.
Income Statement
Metric
Value
YoY Change
QoQ Change
Revenue
313.53M
65.47%
29.43%
Operating Income
-69.27M
-400.41%
-601.35%
Net Income
-67.37M
-418.29%
-504.28%
EPS
-1.44
-289.47%
-344.07%
Key Financial Ratios
Net Income vs. Revenue
Expense Breakdown
Management Commentary
Key quotes from management on strategy, operations, and market conditions:
- Strategy and growth trajectory: Wahid Nawabi, CEO – “We achieved another record first quarter with revenue of nearly $455 million” and “we are better positioned than ever to drive industry-leading organic revenue growth and profitability,” highlighting the strategic rationale for Blue Halo integration and HALO expansion.
- Backlog and visibility: Wahid Nawabi – “Bookings for the first quarter reached nearly $400 million and our funded backlog grew to $1.1 billion. Unfunded backlog is now at $3.1 billion.” Kevin McDonnell reinforced the 82% visibility to the revenue midpoint and the expectation that unfunded backlog will grow with new contracts (Q2-Q3).
- Halos and software ecosystem: Wahid Nawabi – HALO is a hardware-agnostic, AI-powered software ecosystem that blends AeroVironment and BlueHalo software, offering multi-domain command and control, intelligence analysis, synthetic training, and autonomous targeting.
- Long-term opportunities and program wins: Wahid Nawabi highlighted major ramp opportunities including a $240 million laser communications terminal award and a $95 million FE1 missile development award, with expectations to transition to production and scale manufacturing; LOCUST and Titan RF solutions are positioned as future growth drivers in the counter-UAS and space domains.
- Market position and execution: Wahid Nawabi emphasized the leadership position in space communications, directed energy, and counter-UAS, with a focus on capacity expansion and international opportunities (e.g., partnerships with Sierra Nevada Corporation, Denmark, and the Dutch Ministry of Defense). The Q&A underscored the potential for a multi-year growth trajectory powered by a diversified, open-architecture software platform.
We achieved another record first quarter with revenue of nearly $455 million.
— Wahid Nawabi
Bookings for the first quarter reached nearly $400 million and our funded backlog grew to $1.1 billion. Unfunded backlog is now at $3.1 billion.
— Wahid Nawabi
Forward Guidance
Management guidance for FY2026 remains intact: revenue in the range of $1.9–$2.0 billion; adjusted EBITDA target of $100–$320 million; non-GAAP EPS guidance of $3.60–$3.70. The company notes 82% visibility to the midpoint of revenue guidance, indicating a relatively solid probability of hitting the mid-point, albeit with ongoing budgetary and timing risks tied to US DoD appropriations and potential continuing resolutions. The unfunded backlog of $3.1 billion provides substantial near-term revenue visibility as funds flow through the federal budgeting process; however, actual orders depend on congressional appropriations and timely contract awards.
Key factors for investors to monitor:
- DoD funding cadence and potential CR/appropriations risk: any delays could compress near-term orders and delay funded bookings.
- Execution of the Blue Halo integration: realization of synergies in gross margins, SG&A, and R&D as a percentage of revenue stabilizes toward the company’s targets.
- Halo ecosystem adoption: continued development of HALO, its interoperability with third-party hardware/software, and the rate of international customer adoption.
- Capacity expansion and supply chain resilience: Salt Lake City facility and distributed manufacturing footprint to support multi-year growth, with attention to ramp timing and capital expenditure needs.
Competitive Position
Company
Gross Margin
Operating Margin
Return on Equity
P/E Ratio
KTOS
24.30%
2.18%
0.32%
254.34%
AXON
60.60%
-1.46%
3.44%
114.91%
EVEX
0.00%
0.00%
-64.10%
-5.17%
LHX
26.30%
10.20%
2.02%
25.36%
Gross Profit Margin
Operating Profit Margin
Return on Equity
P/E Ratio Comparison
Investment Outlook
AVAV stands as a strategically compelling, multi-domain defense technology platform with a large and expanding TAM driven by Blue Halo’s integration and HALO software ecosystem. The QQ1 2026 results demonstrate meaningful topline momentum and a robust, demand-driven backlog pipeline, including a $240 million laser communications award and a $95 million FE1 missile contract, which should translate into sustained production growth over the coming quarters. Near-term profitability is being temporarily offset by integration costs and a higher service mix; however, management anticipates margin improvement through the year to mid-30s gross margins and 16% Adjusted EBITDA as synergies mature. The key bull case hinges on: (1) the conversion of unfunded backlog into funded orders as DoD funding flows through the appropriations process, (2) HALO’s ability to unlock interoperability-led adoption across domestic and international customers, and (3) the continued rollout of capacity expansion (Salt Lake City and 12-state footprint) to meet elevated demand.
Risks to this view include potential funding delays, execution risk in integrating Blue Halo, and competitive dynamics in the high-end unmanned systems and space-enabled solutions. Overall, for investors with a long-term defense-technology thesis and tolerance for near-term profitability headwinds linked to strategic consolidation, AeroVironment presents a constructive growth story with a favorable risk-adjusted upside given the scale of programs on the horizon and the company’s demonstrated capability to scale manufacturing quickly and efficiently.
Key Investment Factors
Growth Potential
Blue Halo integration expands AeroVironment’s addressable market across autonomous systems, space technologies, directed energy, electronic warfare, and cyber. HALO provides a scalable software-defined platform with open APIs and third-party interoperability, enabling faster deployment and higher attach rates across DoD and international customers. Major near-term growth drivers include laser communications (Space domain) with a $240 million long-haul laser terminal award, FE1 missile development, LOCUST directed-energy systems, and the LRR program; in total, 20+ programs with >$20 billion potential over the next five years. International expansion opportunities with NATO partners and allies are supported by HALO interoperability and international certifications.
Profitability Risk
Concentration in US DoD and allied budgets subjects AeroVironment to macro funding risk and potential political gridlock (continuing resolutions). Integration of Blue Halo introduces execution risk and potential margin volatility as the combined entity shifts mix toward services and early-stage programs. Unfunded backlog, while robust, requires conversion into funded orders; timing of these awards is uncertain and depends on congressional appropriations. Export controls and technology transfer regulations could influence international sales; competition in the higher-end counter-UAS and space laser markets may intensify as nations seek rapid scale.
Financial Position
Strong liquidity with $722 million in cash and investments; total debt of $829.7 million and net debt of $143.9 million; substantial funding obtained in QQ1 (~$1.7B) to support Blue Halo integration and capacity expansion; funding supports a Salt Lake City manufacturing facility and multi-site manufacturing footprint (12 states). Goodwill and intangible assets are elevated due to the acquisition, but the balance sheet remains solid with total stockholders’ equity of roughly $4.43 billion. Near-term negative GAAP net income is anticipated to improve as integration synergies materialize and production scales improve; the company’s liquidity supports continued investment in growth initiatives.
SWOT Analysis
Strengths
Expanded, diversified portfolio via Blue Halo integration across autonomous systems, space, cyber, directed energy, and electronic warfare.
Strong demand for multi-domain capabilities with backlog growth (funded and unfunded) and high-quality program wins (e.g., laser communications, FE1, LOCUST).
HALO software ecosystem offers open architecture, interoperability, and potential third-party integrations, enabling faster adoption and stickiness.
Robust manufacturing capacity and geographic diversification (12 states) with a planned Salt Lake City expansion to scale beyond FY2027.
Established international footprint and collaboration with allied nations.
Weaknesses
Near-term profitability pressured by integration costs and higher service mix; GAAP gross margins at 21% and net loss in QQ1 2026.
High intangible amortization and one-off integration costs that depressed GAAP earnings.
Large unfunded backlog creates go-to-market timing risk depending on government funding flow.
Opportunities
Golden Dome laser terminal capability with space-based application and cross-domain connectivity.
Laser communications, phased-array systems, and next-generation counter-UAS solutions with multi-year growth potential.
Global expansion through HALO ecosystem and international partnerships; potential export growth aided by certifications.
LRR program and related ROIs for international customers; scalable P550/Switchblade family momentum.
Threats
US DoD budget timing and potential continuing resolutions could impact near-term order flow.
Competition in high-end drone and space laser markets may intensify while scale-up risks remain.
Geopolitical and regulatory changes affecting export controls and defense procurement.
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