AeroVironment Inc Q4 2025 Earnings Call Transcript

The following is excerpted from the question-and-answer section of the transcript.

Question: Louie DiPalma - William Blair - Analyst : Wahid, Kevin and Denise, congrats on closing the major acquisition.

Question: Louie DiPalma - William Blair - Analyst : For Wahid, the fourth quarter demonstrated pretty robust Switchblade growth. Can you discuss your view of the Army's announcement of their transformation initiative that came out last month and the report that the Army wants to outfit combat divisions with more than 1,000 drones? And can you discuss that in the context of how the Army has already ordered thousands of Switchblades from AeroVironment and thousands of Pumas in the past? And so do you view this Army transformation initiative as incremental to what you've already provided for them?

Question: Louie DiPalma - William Blair - Analyst : Great. That makes sense. And another question. You guys discussed the very strong foreign military sales pipeline and how I think you are shipping the Switchblade to 8 countries, and you are involved in negotiations with another eight. And so I'm just wondering, was there a write-down in the unfunded backlog? And was that write-down related to foreign military sales and the different policies under the new administration?

Question: Louie DiPalma - William Blair - Analyst : Okay. Yes. Investors were just wondering on a sequential basis, the total backlog adding funded and unfunded went down significantly. And so was there any write-downs in terms of -- or was just everything just unfunded converted to funded and then there was the revenue burn associated with the backlog?

Question: Louie DiPalma - William Blair - Analyst : Okay. Great. And one last one, if I may. Has -- is there still a significant market opportunity for the P550? And you -- can you just discuss the broad market opportunity for both the P550 and the Red Dragon, which I don't think have generated any revenue for you yet. But they seem to have significant potential for fiscal '26?

Question: Greg Konrad - Jefferies Group LLC - Analyst : Maybe just to start with a clarification on the revenue guidance. If I look at the bottom end of autonomous and space, it adds to the $1.9 billion. But if you look at the upper end, autonomous at $1.4 billion, space cyber at $0.8 billion, it adds to $2.2 billion. Is that conservative? Is there any type of intercompany elimination? Just kind of what drives that rents lower than the segments?

Question: Greg Konrad - Jefferies Group LLC - Analyst : And then it's been a little bit less than two months of ownership with BlueHalo. I mean, I think that the guidance excludes some of the potential expenses and amortization. Did you include anything in the way of either revenue synergies or cost synergies in terms of the '26 outlook?

Question: Greg Konrad - Jefferies Group LLC - Analyst : And then maybe just last one for me. In terms of the 70% visibility going into the year, I think you mentioned that's above where you typically guide. Can you maybe talk to the drivers of that? Does BlueHalo have higher visibility? Did you take a more conservative route in terms of guidance? What kind of drives that higher visibility into '26 at 70%?

Question: Peter Arment - Baird - Analyst : On the -- just kind of focusing on the guidance, I guess, in the individual segments. When you look at autonomous, the year-over-year kind of growth range is quite wide from the -- kind of the pro forma number that you provided, the 14% on the lower end and 33% the higher end. Wahid, is it just assumptions around what LMS volumes can be in Switchblade or maybe first orders for P550? What are some of the kind of key drivers that affect the lower end of the range and the higher end of the range?

Question: Peter Arment - Baird - Analyst : Yes. That's helpful color. And then just on -- you mentioned the budgets. Just have you had a chance to evaluate kind of some of the key BlueHalo portfolio programs, how they've stood up under the budgets? I know the directed energy solutions and the car program certainly have gotten a lot of attention recently.

Question: Steve Strackhouse - RBC Capital Markets - Analyst : This is Steve Strackhouse on for Ken Herbert. Congrats on the closing of BlueHalo, but I was hoping you guys could dive a little further into the FY '26 outlook. How much of the revenue is stemming from the organic legacy AV versus BlueHalo? If you can give some color there.

Question: Steve Strackhouse - RBC Capital Markets - Analyst : Okay. That's helpful. And then maybe just as a follow-up. Can you maybe discuss the profitability across the two segments? You guys have previously -- you used to give like either an adjusted operating income or gross profit across the two. Should they be about the same? Or is there a different way to kind of think about each of them?

Question: Steve Strackhouse - RBC Capital Markets - Analyst : Fair enough. And then maybe if I could just ask one more just in terms of the free cash outlook for the year. I don't think I saw that as part of the guide. Should we assume that it's maybe somewhat similar to FY '25? I can appreciate that there's a lot of moving pieces here.

Question: Andre Madrid - BTIG LLC - Analyst : We're seeing now it's looking like NATO might move to 5% GDP spending pledge given how much of a sizable portion of sales international is becoming specifically amongst NATO customers. I mean, what's your initial assessment on what the impact of this 5% pledge could be if it does get moved through?

Question: Andre Madrid - BTIG LLC - Analyst : Got it. Super helpful. Moving, I guess, to Red Dragon, Wahid. I know we've spoken on this one. But could you maybe just break down a little bit more about what that TAM looks like? I know with Switchblade, you guys have approval to sell to 50 allied nations. But I remember our conversation, it seems like those same restrictions are not imposed on Red Dragon given the ITAR regulations at play. I mean maybe just provide some more detail, if possible. REFINITIV STREETEVENTS | www.refinitiv.com | Contact Us consent of Refinitiv. 'Refinitiv' and the Refinitiv logo are registered trademarks of Refinitiv and its affiliated companies. JUNE 24, 2025 / 8:30PM, AVAV.OQ - Q4 2025 AeroVironment Inc Earnings Call

Question: Pete Skibitski - Alembic Global - Analyst : I guess just to go down the CapEx route on the 6% to 8% guidance on the cloud build-out. Is that a one-term -- not one-term, one-year type of a thing? Should we expect CapEx to go back to the kind of that 2% to 3% range in the future after this cloud build-out?

Question: Pete Skibitski - Alembic Global - Analyst : Okay. Fair enough. I appreciate it. Just one last one for me, just going back to Louie's question on the backlog, right? So you generated $275 million in revenue this quarter, right? Total backlog declined by a little under $700 million. So the math just indicates there's a little over $400 million that is kind of unaccounted for. It seems like it just kind of fell out of backlog. I think that's what people are trying to kind of figure out there. Any -- can you give us any sense of what was going on?

Question: Pete Skibitski - Alembic Global - Analyst : What's that?

Question: Pete Skibitski - Alembic Global - Analyst : How do we --

Question: Pete Skibitski - Alembic Global - Analyst : Yes. Fair enough. We can take it off-line.

Question: Jonathan Siegman - Stifel - Analyst : On booking trends at BlueHalo, we haven't had an update on that since you announced the transaction now over six months ago. Maybe can you help us comment on whether things there are going better or less than what you expected. And you mentioned space, cyber, Directed Energy will lag Autonomous Systems sales growth. Can they keep up on bookings this year?

Question: Jonathan Siegman - Stifel - Analyst : But back to Pete's question on the CapEx. I really love the enthusiasm you have for lots of opportunities to increase and invest in these really exciting areas. Are those in the future? Or are you already accelerating CapEx plans this year? Because it does seem like your guided CapEx is higher than what you had asked for, for the combined business?