EPS of $-0.06 decreased by 112% from previous year
Gross margin of 37.7%
Net income of -1.75M
"We have lowered and narrowed our full fiscal year guidance. For fiscal year 2025, we now expect revenues of $780 million to $795 million, adjusted EBITDA of $135 million to $142 million, and non-GAAP earnings of $2.92 to $3.13 per share." - Wahid Nawabi
AeroVironment Inc (AVAV) QQ3 2025 Results Analysis: Record Backlog, Ukraine Revenue Pivot, and BlueHalo Integration Outlook
Executive Summary
AeroVironmentâs Q3 2025 results presented a mixed nearâterm performance but with a very constructive longerâterm growth trajectory. Revenue of $167.6 million declined 10% year over year and 11% quarter over quarter, reflecting temporary headwinds from LA windstorms and stopâwork orders related to foreign military sales. Despite a softer quarter on the top and bottom lines, the company reported a record funded backlog of $763.5 million (approximately $764 million), underscoring durable demand across its three core segments and signaling meaningful growth potential into FY2026. Management continues to emphasize a robust longâterm growth framework anchored by LMS (Switchblade), UXS (Jump 20/P550), and McCready Works, plus the strategic BlueHalo combination that is expected to broaden addressable markets (space, cyber, EW) and expand production capacity. The guidance revision for FY2025 reflects nearâterm operational disruptions, but the company maintains confidence in achieving a potential nearâ$1 billion annual run rate in FY2026 on an organic basis, with further upside from the BlueHalo transaction once closed (targeted for Q2 CY2025). The quarter also highlighted a meaningful strategic pivot away from Ukraine demand toward diversified international opportunities, supported by several highâquality awards and capacity expansions (e.g., Utah Switchblade facility). Overall, AVAV is navigating nearâterm volatility while positioning for sustained longerâterm growth through product cadence, capacity expansion, and a transformative M&A-enabled platform.
EBITDA: Adjusted EBITDA $21.8m for Q3â25; YoY comparison $21.8m vs $28.8m in Q3â24 (decrease due to lower revenue and higher SG&A, offset by better gross margin).
Net income: GAAP net loss of $1.8m; NonâGAAP EPS: $0.30 vs $0.63 in the prior year.
Backlog: Record funded backlog of $763.5m; approximately $13m of that relates to contracts with stop work orders.
Financial Highlights
Revenue and profitability trends (YoY/QoQ):
- Revenue: $167.6m, down 10.0% YoY and 11.0% QoQ.
- GAAP gross margin: 38.0%; Adjusted gross margin: 40.0%; Adjusted product gross margin: 44.0%; Adjusted service gross margin: 20.0%.
- EBITDA: Adjusted EBITDA $21.8m for Q3â25; YoY comparison $21.8m vs $28.8m in Q3â24 (decrease due to lower revenue and higher SG&A, offset by better gross margin).
- Net income: GAAP net loss of $1.8m; NonâGAAP EPS: $0.30 vs $0.63 in the prior year.
- Backlog: Record funded backlog of $763.5m; approximately $13m of that relates to contracts with stop work orders.
- Liquidity and balance sheet: Cash and investments $72.5m at quarter end; revolver drawn $25m; unbilled receivables up $25m; total debt $59.2m; net debt $12.2m.
- Cash flow: Operating cash flow negative at $(25.8)m; free cash flow negative $(29.6)m.
- Revenue mix by segment: LMS $83.9m (+46% YoY); UXS $53.8m (â44% YoY, Ukraine impact); McCready Works $20.0m (+28% YoY).
Income Statement
Metric
Value
YoY Change
QoQ Change
Revenue
167.64M
-10.15%
-11.05%
Gross Profit
63.20M
-4.58%
-14.18%
Operating Income
-3.09M
-121.62%
-144.06%
Net Income
-1.75M
-112.63%
-123.25%
EPS
-0.06
-112.00%
-122.22%
Key Financial Ratios
currentRatio
4.22
grossProfitMargin
37.7%
operatingProfitMargin
-1.84%
netProfitMargin
-1.05%
returnOnAssets
-0.17%
returnOnEquity
-0.2%
debtEquityRatio
0.07
operatingCashFlowPerShare
$-0.92
freeCashFlowPerShare
$-1.06
priceToBookRatio
5.87
priceEarningsRatio
-720.62
Net Income vs. Revenue
Expense Breakdown
Management Commentary
Management themes from the earnings call:
- Strategy and growth framework: Wahid Nawabi stressed that AVAV remains âthe global leader in defense technologyâ with a focus on AI-autonomy, broadening the portfolio via the BlueHalo combination, and expanding capacity to support >$1 billion in annual LMS revenue by FY2027. Quote: âThe BlueHalo transaction will further increase our total market opportunity and growth potentialâŚâ
- Backlog and demand strength: Nawabi highlighted a record backlog of ~.$764 million and asserted nearâterm momentum, including highâprofile awards (LASSO, Replicator, Danish Jump 20 program) and a path to organic growth into FY26. Quote: âbacklog to a record $764 million.â
- Near-term headwinds and guidance: The company acknowledged LA winds/fire disruptions and DOD stopâwork orders that constrained Q3/Q4 delivery, leading to revised FY2025 revenue guidance and a stated expectation of a strong Q4 and accelerating FY2026 growth. Quote: âwe are lowering our fiscal year 2025 revenue⌠but remain on track for another record fourth-quarter revenue with accelerating growth in fiscal year 2026.â
- Ukraine revenue transition: Management described a managed pivot away from Ukraine exposure, with Ukraine expected to represent ~6% of Q4 revenue and 17% of FY25 revenue, down from 38% in the prior year, signaling a shift toward broader international programs and systemic demand in DOD/NATO markets. Quote: âthe shift has underscored the battlefield effectiveness⌠Ukraine will represent only about 6% of Q4 revenues.â
- BlueHalo integration progress: The call underscored regulatory clearances (HSR, antitrust, SEC Sâ4) and a planned shareholder vote on April 1, with closing anticipated in Q2 CY2025, positioning cost/capacity synergies and expanded capability across air/land/sea/space/cyber. Quote: âOur next major milestone is a shareholder vote to approve the transaction which is scheduled for April 1.â
We have lowered and narrowed our full fiscal year guidance. For fiscal year 2025, we now expect revenues of $780 million to $795 million, adjusted EBITDA of $135 million to $142 million, and non-GAAP earnings of $2.92 to $3.13 per share.
â Wahid Nawabi
Backlog is at a record $764 million.
â Wahid Nawabi
Forward Guidance
Outlook analysis: Management lowered FY2025 revenue guidance to $780â$795 million and pegged Adjusted EBITDA at $135â$142 million with nonâGAAP EPS of $2.92â$3.13, reflecting nearâterm operational disruptions (LA windstorm, stop work orders) and integration costs related to BlueHalo. However, the company remains confident in FY26 with expectations of a nearâ$1 billion revenue run rate on an organic basis, supported by a record backlog (~$764 million), a strengthening LMS pipeline, and a growing international awards pipeline (Jump 20, Danish contract, German UGV). The BlueHalo combination is expected to unlock additional growth opportunities in space, counterâUAS, directed energy, cyber, and space communications, potentially driving outsized revenue and margin expansion over the next 2â3 years, though execution risk remains tied to regulatory approvals and integration milestones. Key factors for investors to monitor include: (1) closing timing and integration execution of the BlueHalo deal; (2) execution of Q4 deliveries amid stop work orders and tariff developments; (3) progression of LMS capacity buildouts and the Utah facility ramp; (4) evolution of international orders, especially Jump 20 and P550 programs; (5) the pace of Ukraine revenue normalization versus new US/NATO program wins; and (6) any changes in DoD funding or policy impacting autonomous systems.â,
Competitive Position
Company
Gross Margin
Operating Margin
Return on Equity
P/E Ratio
AVAV Focus
37.70%
-1.84%
-0.20%
-720.62%
KTOS
25.10%
2.36%
0.24%
277.78%
AXON
60.80%
4.42%
3.19%
112.83%
EVEX
0.00%
0.00%
-21.90%
-6.74%
LHX
26.80%
9.35%
2.11%
27.85%
Gross Profit Margin
Operating Profit Margin
Return on Equity
P/E Ratio Comparison
Investment Outlook
AVAV exhibits a compelling longâterm growth thesis anchored in its leadership in autonomous UAS and loitering munitions, expanding production capacity, and a transformative BlueHalo combination that broadens capabilities across air, land, sea, space, and cyber domains. The record backlog (~$764m) and multiple highâvalue international awards underpin a favorable demand trajectory into FY26, with management signaling a nearâ$1B organic revenue opportunity and ongoing margin expansion from product mix and capacity gains. However, the nearâterm remains challenged by LA windstorms, Ukraine revenue normalization, and the integration/costs associated with BlueHalo, which are reflected in FY2025 guidance that was narrowed to $780â$795m revenue and $135â$142m adjusted EBITDA, with nonâGAAP EPS of $2.92â$3.13. Investors should weigh the longâterm optionality of the BlueHalo deal and the acceleration potential of LMS/UXS pipelines against the nearâterm profitability pressures and regulatory/operational execution risks. In sum, AVAV offers a favorable riskâadjusted upside given its backlog, market leadership, and optionality from the BlueHalo integration, but requires close monitoring of the deal timeline, execution of Q4 deliveries, and DoD demand environment.
Key Investment Factors
Growth Potential
- Record backlog and highâquality awards underpin strong organic growth potential, particularly in LMS and UXS styles (Switchblade, Jump 20, P550). - Utah Switchblade facility expansion and the BlueHalo integration are targeted to lift annual LMS revenue beyond $1B by end of FY2027 and broaden total addressable market in space, cyber, and EW.
Profitability Risk
- Nearâterm profitability is pressured by wind/fire disruptions, stopâwork orders on four FMS contracts (~$13m in bookings), and ongoing acquisition costs related to BlueHalo. - Ukraine exposure has materially decreased but remains a macro risk if geopolitical dynamics shift; tariff changes and US policy could affect international demand. - Integration risk and potential regulatory delays around BlueHalo.
Financial Position
- Liquidity modest but adequate with $72.5m cash/investments and a $200m revolver (drawn $25m). - Net debt of $12.2m; ongoing capex for capacity expansion (Switchblade Utah). - Backlog and billings trajectory improving (unbilled receivables up $25m, with LMS progress billings beginning). - Nearâterm GAAP profitability (GAAP net income â$1.8m) contrasted with adjusted EBITDA $21.8m in Q3; target FY25 adjusted EBITDA $135â$142m and nonâGAAP EPS $2.92â$3.13.â}},
SWOT Analysis
Strengths
Record funded backlog (~$764m) supports durable growth in FY26
Leadership in autonomous, AI-enabled UAS and loitering munitions (Switchblade, Jump 20)
Strong pipeline and international awards (Danish Jump 20, German UGV)
Significant capacity expansion (Switchblade Utah facility) and BlueHalo synergy potential
Weaknesses
Nearâterm profitability pressures (Q3 net loss, SG&A elevated)
Operational disruptions from LA windstorms and power outages
Stop-work orders on ~$13m in FMS contracts affecting Q4 deliveries
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