AVAV - NASDAQ

Good day, and thank you for standing by. Welcome to AeroVironment's First Quarter and Fiscal Year 2026 Earnings Conference Call. After the speakers' presentation, there will be a question and answer session. To ask a question during the session, you will need to press 11. Please be advised that today's conference is being recorded. I would now like to hand the conference over to your speaker today, Director of Investor Relations, Denise Paccioli. Please go ahead.

Thank you, and good afternoon, ladies and gentlemen. Welcome to AeroVironment's First Quarter Fiscal Year 2026 Earnings Call. My name is Denise Paccioli, Director of Investor Relations for AeroVironment. 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 10-Ks and other filings with the SEC, in particular, the risk factors and forward-looking statement portion of such filings. Copies are available from the SEC 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 Investors 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, 09/09/2025. 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 AeroVironment are Chairman, President, and Chief Executive Officer, Mr. Wahid Nawabi, and Executive Vice President and Chief Financial Officer, Mr. Kevin McDonnell. We will now begin with remarks from Wahid Nawabi. Wahid?

Thank you, Denise. Welcome everyone to our first quarter fiscal year 2026 earnings conference call. I'll start by summarizing our quarterly performance, followed by Kevin, who will review our financial results in greater detail, and then discuss guidance for fiscal year 2026. After this, Kevin, Denise, and I will take your questions. I'm pleased to report a very strong start to our fiscal year with excellent first quarter financial results, setting new records for the company. We are better positioned than ever to drive industry-leading organic revenue growth and profitability. Our acquisition of Blue Halo has created significant new growth in critical areas that are aligned with our customers' highest priorities. And our integration efforts are progressing ahead of plan. Our first quarter results benefited from programs tied to this acquisition, and we look forward to building on that momentum in the coming quarters. Now, let me summarize the key messages for 2026 which are included on slide number three of our earnings presentation. As a reminder, this is the first quarter where our results are inclusive of our recent Blue Halo acquisition. First, we achieved another record first quarter with revenue of nearly $455 million. Second, 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. Third, we introduced several innovative solutions in Counter UAS, space communications, and direct energy among other areas, that are directly aligned to our customers' urgent priorities and represent multibillion-dollar market opportunities over the next several years. And fourth, we're maintaining our fiscal year 2026 guidance with revenue between $1.9 billion and $2 billion. Overall, AeroVironment is uniquely positioned as a leading defense tech prime with our innovative product offerings, along with the experience and capacity necessary to scale manufacturing on an expedited timeline. This is what is required for the urgent national security priorities of our nation and our allies around the globe. We have worked very hard throughout the past few years to position AeroVironment for such a historic set of opportunities. Since our last earnings call, we announced several key program wins and milestone achievements. For example, yesterday we announced a nearly $240 million award for our long-haul space laser communications terminals. That will be delivered over the next three and a half years with options for additional systems. To put this in perspective, we expect the laser communication is going to be one of the most important aspects of warfare in the space domain. And represents a multibillion-dollar opportunity for AeroVironment. AeroVironment is clearly leading the industry in this critical area and technology. Our technology allows the secure transfer of high bandwidth data in the most challenging space environments at the fastest rates and across very long distances than any other current capability on the market. This is a strategic and critical milestone for our customers and we're now excited to move it from development into full-rate production. With our decades of proven track record, AeroVironment is well-positioned to efficiently scale our laser comm manufacturing to capture growing demand in this multibillion-dollar new market. In addition, AeroVironment was also recently awarded a $95 million contract to further the development and scale manufacturing of our Freedom Eagle One or FE1 for long-range kinetic interceptor program for the US Army. This missile is designed to deliver extended range, higher altitude, and all-weather performance against a broad set of emerging threats. AeroVironment's FE1 missile addresses a much broader set of requirements at much affordable price points than anything available on the market today. Our nation needs capabilities such as FE1, to affordably defend our nation against such emerging threats. This award enables AeroVironment to enter and disrupt a multibillion-dollar missile defense market. The US Army considers our innovative SD WAN solution the leading capability in this critical area. We're looking forward to sharing future progress with you on FE1 and our next-generation counter UAS missile efforts in the coming quarters. Another key achievement in the first quarter was the recent delivery of two of our counter UAS inventory squad vehicle-mounted LOCUST laser weapon systems. Under the US Army's multipurpose high-energy laser program, or AMP HEL. We're set to deliver two additional joint light tactical vehicles or JLTVs mounted LOCUST laser weapon systems next month for the second increment of the AMP HEL program. These deliveries mark a major milestone in the US Army's objective of operationalizing directed energy capability to defend against the emerging proliferation of drone warfare. Our LOCUST laser weapon system use of directed energy is a critical emerging technology that is key to defending against group one through four drones. And in the future, will enable defense against hypersonic missiles, cruise missiles, and other projectiles at much lower and affordable costs. We also see this emerging market exceeding several billion dollars in the coming years, And AeroVironment is ahead of most, if not all industry players to scale and capture a significant portion of this very large opportunity. And finally, we delivered multiple P550 Route 2 UAS systems along with training to the US Army for the long-range reconnaissance or LRR program of record. Persistent, low-cost, reliable ISR at the edge of the battlefield represents a shift in defense strategy around the globe. And we believe our P550's performance specifications meet the US Army's program requirements better than any other competitor solution on the market. This program of record represents approximately $1 billion in value over the next five years, and AeroVironment is very well prepared to execute and deliver on it. The successful adoption of our P550 with the US Army's LRR program should also lead to more international adoption of this capability by our allies in the coming years. We've experienced such a trend with our other global franchises, such as the Raven, Puma, and Switchblade. We look forward to continued progress with this significant program record. In addition to these significant program wins, and milestone achievements, last week, we unveiled AeroVironment Halo, a software platform and ecosystem that is hardware agnostic, and unifies our suite of mission-ready software tools and offerings. AeroVironment HALO clearly demonstrates the depth and breadth of our AI-powered software ecosystem for our end markets. At launch, these software modules include our multi-domain command and control, intelligence analysis, synthetic training, and autonomous targeting. AeroVironment HALO blends the best of both legacy AeroVironment and BlueHalo software solutions and offers our customers a comprehensive mission-ready suite of AI-powered software tools that empowers warfighters to dominate the mission across air, land, sea, space, and cyber domains. We're excited to share more details over the coming months about how AeroVironment HALO software enhances the speed, autonomy, modularity, and interoperability of our offerings to address growing market needs. As the industry continues to grow, and demand for our customer-driven solutions increases, we are focused on leveraging our strategic partnership to unlock new opportunities for AeroVironment. Both domestically and abroad. Since our last earnings call, we have announced several key partnerships that will advance our long-term growth objectives and broaden our exposure in new areas. First, we announced a strategic partnership with Sierra Nevada Corporation, for limited area defense architecture under the Golden Dome for America initiative. This partnership focuses on integrating and aligning existing open architecture solutions using passive and active sensing radio frequency directed energy kinetic energy electronic warfare, and cyber solutions, and addresses the complete kill chain to neutralize group one to four unmanned aerial systems advanced cruise missiles, and other next-generation aerial threats. With our broad suite of technological solutions, AeroVironment is uniquely positioned to help protect our nation by implementing a cost-effective solution for sovereign missile defense. Second, we signed a memorandum of understanding in Denmark for expanding airport utilization for median UAS training demonstrations, and customer integration activities in the region. And finally, we announced an expanded partnership with the Dutch Ministry of Defense to modernize and expand their Puma fleet highlighting the rising demand for adaptable mission-ready, unproved systems across NATO. In summary, we're currently pursuing more than 20 different programs of record which exceed $20 billion in potential value over the next five years. Included in these programs are OPF light and medium one-way attack lasso, LRR, laser communications, NGCM, HMIF, and additional options with our SCAR space program among several others. As we pursue these significant opportunities and programs ahead, we're also focused on managing the business efficiently during this period of high growth and capacity expansion. This past quarter, we successfully raised more than $1.5 billion through equity and convertible debt. Funds were used to pay down debt from the acquisition of Blue Halo, and the balance will be used to help support the company's growth including necessary production capacity expansion. As we've discussed over the past year, our current facilities are capable of scaling manufacturing to meet rising demand through at least fiscal year 2027. We're making progress on a new state-of-the-art manufacturing facility in Salt Lake City, Utah, which will allow us to considerably increase our manufacturing capacity for demand beyond fiscal year 2027. As part of our distributed approach to manufacturing for resiliency and risk diversification, we now have manufacturing sites operating across 12 different states. Now I would like to provide brief updates on our two business segments. Our first segment, autonomous systems, achieved revenues for the first quarter of $285 million. This segment continues to remain a strong growth driver for the company as demand continues to increase for our family of UAS solutions such as Puma, P550, and Jump 20. We anticipate further growth in our precision Strike and Counter UAS Group for our Switchblade family products, Redragon One Way Attack Drone, as well as from our RF counter UAS solution, Titan, and our next-generation counter UAS missile defense system, FD1. Now onto our second segment, space, cyber, and directed energy or SCDE segment. Our SCDE segment posted first-quarter revenues of $169 million. Our space technologies and directed energy solutions will continue to drive growth in this segment and for the company. As I mentioned earlier, when announced yesterday, a $240 million contract award for our long-haul space laser communication system. In addition to anticipated revenue growth from this area, we're confident that our Badger phased array solution and our counter UAS directed energy solutions LOCIST, will be key growth drivers for this segment in the future. Let me conclude my comments with the following. With the acquisition and successful integration of Blue Halo, we have significantly expanded our cutting-edge and battle-proven portfolio to include space technologies, counter UAS, directed energy, electronic warfare, and cyber solutions. We have broadened our growth opportunity in a demand-fueled market. This has been a deliberate part of our long-term strategy. Our high-volume manufacturing expertise and capacity in these critical areas is also another key differentiator that is unrivaled in the industry. AeroVironment's installed base of more than 42,000 platforms, fielded and performing in high-demand environments across multiple domains, is another aspect of our competitive differentiators. And finally, our track record of exporting and supporting solutions to more than 100 allies around the world sets us further apart than any other player in this industry. We have worked hard to position our company for success. And we're very excited to help our nation and allies across the globe. AeroVironment stands ready to continue executing and delivering on our promise to our key stakeholders so they can proceed with certainty. With that, I would like to now turn the call over to Kevin McDonnell for a review of our fourth quarter and full-year financials. Kevin?

Thank you, Wahid. Today, I will be reviewing the highlights of our first-quarter performance, which I will occasionally refer to both our press release and earnings presentation available on our website. Just a reminder that we closed our Blue Halo acquisition on May 1, so results for Q1 and projected FY '26 include the financial activity from Blue Halo. I'll briefly comment on the results for the quarter and then turn to guidance for the remainder of FY 2026. In summary, we are very pleased with the results of the new AeroVironment on all metrics delivering solid top-line and EBITDA growth. As Wahid mentioned, our equity and debt raise in July position us well for growth with over $700 million of cash and investments on the balance sheet. Wahid also mentioned in his remarks we started the year with $454.7 million of revenue in the first quarter, which represents a 140% increase over the prior year as reported or an 18% increase on a pro forma revenue basis. Since the acquisition of Blue Halo, our regional revenue mix has shifted towards the increase in domestic revenue. For Q1, 78% of our revenue came from domestic customers, and 22% from international customers. In the first quarter, Ukraine represented 8% of revenue. The rest of Europe represented another 6% of revenue. Expect Ukraine revenue to remain between 5-8% of total revenue in FY '26. When comparing pro forma revenue for the '5, several of our products realized tremendous growth. Switchblade 600 product had over 200% revenue growth. Jump 20 had over six times revenue growth. Our LOCUST directed energy counter UAS systems also had five times pro forma revenue growth. Titan revenues nearly doubled a reflection of the strength of our counter UAS RF business, and finally, Badger, an advanced RF satellite ground station, grew nearly 40%. Notably, we received an award for $70 million for additional Badger units in the quarter. And this is part of a larger order, expect to receive in Q2. As mentioned on prior earnings calls, AeroVironment is now operating under two reporting segments: Autonomous Systems or AXS and Space, Cyber, and Directed Energy or SCDE. AXS ended the quarter strong with $285 million of revenue, representing a 22% increase over FY '25 pro forma revenues. Of the total in the quarter, about 35% came from Switchblade 600 product, 15% came from Puma products, 9% from Switchblade 300, 7% from counter UAS RF, and 6% from Jump 20. SCDE ended the quarter with $169 million of revenue, which represented a 12% increase over pro forma FY '25. Of the total for the quarter, approximately 19% came from Badger satellite ground station, 12% from LOCUST directed energy counter UAS systems, and 12% from our advanced R&D businesses which focuses on research, development, testing, and evaluating emerging technologies to ensure their effectiveness transition to the warfighter. In terms of adjusted EBITDA, slides ten and eleven on our earnings presentation show the reconciliation of GAAP gross margins to adjusted gross margins and net income to adjusted EBITDA. Adjusted EBITDA in Q1 was $56.6 million, up from last year's Q1 of $37.2 million as reported primarily due to the incremental Blue Halo results. EBITDA as a percentage of revenue ended at 12.4% of revenue was in line with our expectations. We continue to forecast full-year adjusted EBITDA at 16% of revenue. Moving to gross margins. In the first quarter, consolidated GAAP gross margins finished at 21% versus 43% in the prior year. The decrease in GAAP gross margins can be attributed to the higher service mix of 31% of revenues versus 16% in the prior year. Plus an increase of intangible amortization, other noncash accounting expenses of $33.7 million over FY '25. First-year first-quarter adjusted gross margins were 29% versus 45% in the '5. As noted, the business landscape of the combined new company has changed significantly with a higher service mix and several products at early stages of maturation. We believe adjusted gross margins should continue to improve throughout the year, ending up in the mid-30s by Q4 with an average for the year in the low thirties. Moving on to operating expenses. Reported GAAP SG&A for the quarter was $131.3 million versus $33.8 million in the prior year. Net of intangible amortization deal and integration costs adjusted SG&A was $65.2 million versus $32.7 million in the prior year. The increase is largely a result of the combination of Blue Halo. As a percentage of revenue, adjusted SG&A in the quarter was 14.3% of revenue versus 17.3% in FY '25. Again, these SG&A levels represent a shift in the business model and we expect to end the year in the 11% to 13% range. As we begin to realize synergies and achieve higher revenue. R&D expense for the first quarter was $33.1 million or 7.3% of revenue compared to the $24.6 million thirteen percent of revenue in the prior year. Again, this is a shift in the business model, and we expect R&D as a percent of revenue to end the year at between 6-7% revenue range. Now turning to GAAP earnings. In the first quarter, the company generated a net loss of $57.4 million versus net income of $21.2 million recorded in the same period last year. The decrease in net income of $88.5 million can be attributed to increased intangible amortization, other non-cash purchase accounting expenses of $74.9 million for the Blue Halo acquisition, plus another $23.7 million of deal and integration costs. In addition, interest in other income expense increased $14.6 million year over year. This was offset by the additional $6.3 million of income from operating activities and a decrease in taxes of $16.7 million. Slide 12 shows the reconciliation of GAAP and adjusted or non-GAAP EPS. The company posted adjusted earnings per diluted share of $0.32 for the first quarter of fiscal 2026 versus $0.89 related share for 2025. Moving to the balance sheet. At the close of the first quarter, our total cash and investments amounted to $722 million. As most of you know, we completed $1.7 billion financing during the first quarter, of which approximately $950 million was used to pay down the debt from the Blue Halo acquisition. We now have a completely new balance sheet as a result of the Blue Halo transaction. Consequently, many of our balances are not comparable to prior periods. For instance, our overtime revenue recognition has increased from 41% to 75% of revenue year over year driving up unbilled receivables. With that said, unbilled receivables continue at a higher level than we are targeting. We have been negatively affected by the alignment of the contracting officers for our Switchblade product. This transition has been completed. And we expect unbilled to be down significantly the next quarter. Turning to backlog. Our funded backlog at the end of 2026 finished at $1.1 billion. Unfunded backlog grew to $3.1 billion at the end of Q1. I should note that we included our visibility from expected Medicare long-term contracts which we expect to perform during the fiscal year. But which have not been funded as of this date. Given this, the visibility to the midpoint of our revenue guidance range is 82%. We expect that our unfunded backlog to continue to grow significantly during the second quarter due to the recently announced contracts and new contracts in the cycle. Finally, I would like to provide you with our updated FY 26 guidance. On page six of the presentation, we provide fiscal 2026 guidance. Fiscal year revenue is still expected to be between $1.9 billion and $2 billion. Adjusted EBITDA remains between $100 million and $320 million but non-GAAP adjusted EPS is now projected to be between $3.60 and $3.70. Due to the refinancing of our debt. The midpoint of our revenue guidance range represents nearly 15% growth over the pro forma FY '25. So as mentioned previously, our visibility to the midpoint of revenue guidance range is at 82%, which is higher than it at the higher end of historical range at this point during the year. I'd like to close by echoing Wahid's remarks. We are very well aligned with the US DOD priorities and those of the allies and are excited about our prospects. Now I'd like to turn things back to Wahid.

Thanks, Kevin. Before turning the call over for questions, I'd like to reiterate all the positive momentum we have entering our 2026. First, we achieved another record first quarter with revenues of nearly $455 million. Second, 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. Third, we introduced several innovative solutions in Counter UAS, space communications, and direct energy among other areas that are directly aligned to our customers' urgent priorities and represent multibillion-dollar market opportunities over the next several years. And fourth, we're maintaining our fiscal year 2026 guidance with revenue between $1.9 billion and $2 billion. Our strong first-quarter results underscore the confidence we have in the future of AeroVironment, and our ability to reshape the future of defense. Our integrated capabilities across every domain of modern warfare combined with our enhanced innovation and ability to scale, strengthens our ability to address emerging global priorities. We stand ready and committed to deliver just as we've always done. With strong support on both sides of the aisle in Congress, the current administration, and our customers, we're confident that AeroVironment will not be negatively impacted should Congress fail to pass a budget resulting in a continuing resolution. The support for our solutions and the urgency behind the needs for our products gives us confidence. That we will remain a high priority in either scenario. Additionally, we have significant momentum internationally with our allies. Where our ability to deliver battle-proven solutions quickly at scale is certainly a competitive advantage. I want to thank our employees, shareholders, and customers for their continued commitment to AeroVironment and our mission. We're honored to support the most critical defense missions at this pivotal moment, and we're ready to seize the tremendous opportunities ahead. And with that, Kevin, Denise, and I will now take your questions.

Thank you. As a reminder, to ask a question, you will need to press 11 on your telephone. Callers limit themselves to one question and return to the queue to ask additional questions. Our first question comes from Ken Herbert with RBC. You may proceed.

Yeah. Hi. Good more or good afternoon. Wahid, Kevin, and Denise. Really nice results. Maybe then, Wahid, Yeah. Maybe, Wahid, just to start off, obviously, good revenues. You didn't change the full-year outlook. I think you know, you've obviously got better visibility at the 82% than you've had at this point in prior years. Can you just talk about some of the puts and takes as we think about the $1.9 billion versus $2 billion full-year revenue outlook and how you're thinking about risk of the guidance on the top line and opportunities to maybe outperform that this year? Thank you.

Thank you, Ken. Yes. We're very pleased with the results. I'm very pleased also with the integration of Blue Halo with AeroVironment. As you know, this is no easy feat. This is a very large undertaking combining two of the best-of-breed companies creating a $2 billion enterprise that addresses all the key areas of our defense priorities, both domestically and internationally with our allies. In terms of our guidance, we feel very good about our first-quarter results, but it is first quarter. We've got three more quarters to go. The budgets for the year are not totally set. There is a potential for a continued resolution, which we don't believe that it's going to affect our year, but in order for us to perform above and beyond that, it's still a lot more questions left. And so given all those reasons, also, some of these contract timing is really critical because the US DOD is going through a lot of changes and transformation and many of their services. And given all that, we believe that we're on track again. It's going to be a fantastic year with record revenues and profitability nearly $2 billion in revenues and $300 million worth of adjusted EBITDA. We're going to be this the poster child of what a defense tech company in a tranche should look like. And we're pleased that we've achieved the results we have so far, and we look forward to updating you in the future.

Thanks, Wahid. I'll stick to one.

No problem. Thank you, Ken.

Our next question comes from Anthony Valentini with Goldman Sachs. You may proceed.

Hey, guys. Thank you for the question. I'm curious, are you guys seeing increased competition now that there's an emphasis on, you know, the unleashing of American drone dominance? And how do you think price will be impacted over time by competition? Like you guys, you know, on your Switchblades, you know, specifically, I think you guys have talked about, you know, low hundreds of thousands of dollars, as the price there. If there's more competition over time, is there a risk that, that price is going to go down and margins will suffer? Thanks.

Anthony, thank you for that question, and great to talk to you again. Obviously, the focus of The US for the American drone dominance is really important, and we support it. And we're very pleased with that. We are used to competition and competitors ever since I've been with this company for over a decade and a half. It is not new to us. We've had the drone insanity when the commercial drone industry was going on. We've had that with our small UAS. There's been doubts about that our performance for decades. AeroVironment has continued decades and decades to be able to deliver and prosper and stay as the leader in this market. What that tells me is that actually the focus on this market and the amount of growth that there is, it's actually attracting more and more investments, of course, but also attention to our customers. So it's a good sign that the US DOD believes that we've got a scale and we got to grow. But we really feel strong about our portfolio. There are several, several key competitive differentiators that enable us to actually lead and continue to stay as the leader. And there are no shortcuts in this business. It's one thing to say that we can somebody can do it. Actually doing it and delivering it at scale. It's a very, very high bar. I want to remind everybody that our systems are used by the tens of thousands globally with scale repeatedly multiple times in our history. And we have a unique competitive advantage in terms of having them manufactured capacity to produce these things at urgent and very short cycles. Based on the demand and urgency and priority of our US DOD and our allies. That is a clear, clear advantage for AeroVironment. Amongst many other things, and, we look forward to that. So while we always take competitors seriously, we're very confident about the best-in-class solutions that we've got in our track record and the positioning that we have in the marketplace. I mean, we've always provided a very cost-efficient product, and a lot of you know, the competition is a lot of that is about the value versus alternatives. So unmanned solutions provide incredible value. A lot of the pressure would probably come more on the low end of the market. Than in our categories, which is, you know, group two and above.

Great. Thank you guys so much.

You're welcome, Anthony.

Our next question comes from Louie DiPalma with William Blair.

Good afternoon, Wahid, Kevin, and Denise.

Hey, Louie. Hello.

Hi there.

Hi.

You announced the AeroVironment Halo Unified software platform last week. Can you talk about how your software integrates with third-party hardware providers in addition to the AeroVironment portfolio of systems? And secondly, is there the potential that your software platform can be open to third-party software developers such that others can build applications on top of your software similar to how like, Palantir has their Maven smart system and it's becoming a platform. And you have this command and control system that seems to have a lot of similarities there for the command and control for the SUAS and CUAS and your laser systems, etcetera. Thanks.

You're welcome, Louie. Of course, AeroVironment Halo software, which we just announced, is really a great example of how we brought the best of both worlds from AeroVironment's portfolio of software solutions as well as BlueHalo software solutions into one cohesive umbrella of an ecosystem and platform that allows us to deliver and innovate in the lots and lots of different areas of the entire market. There is certainly a major, major need and a market opportunity for companies like AeroVironment and others to try to help simplify and integrate and interoperate all these systems together. That's precisely what AeroVironment HALO's strategy and product roadmap and value proposition is all set to be. In regards to your first question, yes, we already today enable third-party devices third-party platforms, hardware systems, to actually integrate and be interoperable with AeroVironment Halo. And many, many other subsystems or modules of AeroVironment HALO. AeroVironment Halo is going to be an umbrella brand with lots and lots of different tools and applications underneath it. And we continue to invest in that. So that's definitely a yes for that. In terms of allowing other third-party companies to develop software as an API and open platform, absolutely true. Yes. That's the case as well. In fact, we already have some solutions that we provide to our customers to our small UAS and our load immunizations which use third-party apps as a software that is plug and play into our system. So the last thing I want to mention is that we've developed AeroVironment HALO ecosystem from the ground up based on the expertise that we have on the edge of the battlefield, with all the platforms and tens of thousands of systems that we make out there in all the different domains. That gives us a unique competitive advantage because it's much, much harder to do the C2, the command and control connectivity interoperability at the lower level at the edge of the battlefield than it is just represented at the graphical user interface at the high levels. The high level gets a lot of limelight and a lot of hype. But the real value in the hard work is how you interconnect the subsystems. In an open modular architecture approach. And that's precisely how we built the software platform that we've got. We're going to continue to invest in it. The software department of our engineering department is the largest department within our entire innovation groups. And so we intend to continue to invest in this best area, and innovate deliver more capability. And that's why our solutions are always been known as software-defined platforms. And I'm glad you asked that question, Louie.

Thanks for the extensive answer, Wahid. And I will save the rest of my questions for Albuquerque. So thanks, everyone.

Wonderful. We look forward to seeing you there, Louie. Thank you.

Our next question comes from Jan Engelbrecht with Baird. You may proceed.

Good afternoon, Kevin and Denise. Congrats on a very strong set of results. I guess, with the Blue Halo now falling part of the group and clearly a big domestic presence, I just wanted to sort of have a sense of the exportability of the Blue Halo product offerings. Just given sort of what Europe is planning to spend and sort of their strength in sort of lack of industrial base to do things themselves. Just look at things like the LOCUST system and space capabilities that you now have. If you could just talk more about that. And then just a small addition, but with the Red Dragon, I'll being placed on the blue US cleared list in August, does that sort of imply that it can be exported immediately? Or is that near term more of a domestic opportunity? Thank you.

Sure. So really, the Blue Halo solution set brings tremendous complementary capabilities to AeroVironment. And as I mentioned earlier, in the space domain, obviously, you know, the large 1.5 plus billion dollar program record that we won with the Space Force is an incredibly advanced innovation and state-of-the-art capability in the phased arrays. And you're going to see some of that, hopefully, if you get to come to our open house in Albuquerque later next month. So we're the leader on that, and that's a very large program. The Vulcan system which I mentioned is the leading directed energy counter drone or counter UAS solution in the market today. We delivered our first batch of systems to the US Army. We continue to deliver some more mounted on a moving mobile JLTV, as I mentioned, and it is going to be a very large multibillion-dollar. We believe that the counter UAS directed energy solution with lasers which is the LOCUST platform as an example, is a multibillion-dollar long-term opportunity for the company. And we're the leader in space clearly. And lastly, I'll mention also that Titan RF solutions were already getting a lot of orders for international customers for that. It's one of the best-performing solutions out there in the market. And that market is multi-billions of dollars over the next decade as well. So absolutely agree with you that the Blue Halo solution set is incredibly complementary to our solution set. They're growing. Winning a lot of opportunities and programs. We're positioned for a lot more. And then being that part of the Blue Halo certified product, which you saw. Are one of our products, absolutely allows us to actually sell internationally easier and also the US DoD and other government agencies can buy easily because of the certification. And so that's another great progress for our company and teams. And we're very pleased with the progress we're making so far.

Great. Thanks, Ed. Very helpful. And just a quick follow-up. In terms of Golden Dome, we obviously see that great program win in GEO with laser terminals. Where you sort of seem to have no competition, really. And we've seen in lower orbit sort of the problems that vendors are experiencing on the optical terminals. Is that still I mean, would you still consider that a golden dome opportunity given that it's gonna have a bit more latency than the satellites in the Earth orbit? And I guess a follow-on, is there any willingness to move down into that orbit just given sort of the delays that vendors have seen in that PWSA program? Thank you. I'll leave it there.

Yes. I'm glad you brought that up because our solution for the laser comms and phased arrays addresses both of those two key areas that you mentioned. Absolutely agree with you that as we start to think about the Golden Dome initiative, and objective, the ability to communicate and space by itself. You know, we learned very, very convincingly in Ukraine. We all the world has learned that RF communication is not safe and secure. It is not immune. It could be jammed. The same thing is true of all the satellites that we have in the space. Whether it's commercial satellites or military satellite, national security satellites, they are susceptible to the same jamming issues because they talk to systems on the ground, and talk to each other. So laser communications, which were the currently the undeniable industry leader technologically as well as product maturity wise. Is the critical way of the future of satellites to be able to communicate. And talk to them. And so we offer that capability. And absolutely, can do that not only for the geosynchronous satellites, but for MEO and LEO satellites as well. In fact, we have a product, a separate product, in our phased array product set called the Panther that is a smaller system that allows us to offer that to international allies many other customers, for LEO and NEO satellites as well. And so that's why I said that market is a multibillion-dollar market, which we believe is just at its infancy. And we've got a leading pole position. And as we continue to execute on our strategy, I think we're going to see a lot of growth in that area and a lot of more attention and focus from the U.S. DoD and a lot of commercial companies as well, customers as well.

Perfect. Thank you. Appreciate the time.

You're welcome. Thank you.

Our next question comes from Jonathan Siegman with Stifel. Good afternoon, Wahid, Kevin, and Denise. Thank you for taking the question.

Thank you, Jonathan. Maybe just on funded backlog. You had disclosed back in November that Blue Halo had about $600 million of funded backlog. When I add that into what you had on April 30, it seems like maybe it's a little bit lower than what we expected. So can you confirm, number one, did the accounting change? When you merge that in? Just they've got a question that maybe something that dropped out wanted was hoping you could confirm that. Is not the case. Thank you.

I don't know where the $600 million comes from, but at the beginning of the period, well, I don't have a Blue Halo. The current SCDE division had about, you know, just over 300, and they increased that during the quarter. Of backlog funded backlog.

Yeah. Just to add to that, Jonathan, you know, we have won and booked quite a lot of really significant unfunded contracts that allow our customers to add dollars to it. Some of that, Jonathan, is related to the fact that a lot of the funding that has been authorized and approved by Congress as well as by the President for the Department as part of the additional funding sources. That they're getting that money hasn't transitioned yet and been released to the services and the program executive offices to authorize or to put task orders against it. So what we have is a great situation where in the next quarter or next quarter, Q2 and Q3, we expect to book an enormous amount of funded orders and part of contracts against those large unfunded existing obligations. And so in general, our funded backlog which was roughly about $1.1 billion. The unfunded part is much, much bigger. It's almost three times bigger, and we're going to see more bookings and task orders to come in this quarter, next quarter to keep building on that momentum that we've got and established.

Yeah. I mean, we think contract signings in the second quarter, I mean, we have the evidence of the laser contract we just signed. You know, could be well over a billion approaching $2 billion in the second quarter. So we're gonna we see a lot of momentum already in this quarter, which, you know, we have some time left. So we're very optimistic.

Right. We look forward to seeing it. Thank you for the time.

You're welcome, Jonathan.

Our next question comes from Greg Conrad with Jefferies. You may proceed.

Good afternoon. Maybe just kind of following up on that question. I mean, in the script, you called out 20 programs, you know, $20 billion over the next five years. Can you maybe talk about how much of that is competitive versus follow-on? And when you think out the next maybe six months, what are some of the larger decisions, you know, within that pipeline that you expect to be made, you know, competitively?

Sure. So, Greg, as you know, we haven't shared such statistics in the past. And I intentionally wanted to share that to emphasize the fact that we're a different company today. And the opportunities in front of us are massive. Literally massive. And the 20 plus programs that we're chasing and were pursuing or actively engaged in. And the majority of those cases, if not all, were one of the top contenders for those programs. We're very, very confident that many of those programs over the next several years are going to convert into some sort of a backlog and demand for solutions. Number one. Number two, Look, you can look at our track record. We have a very high win rate. The timing of those contracts and selection process may change slightly because of the way that the US DOD and the funding and the congressional budgets work. But overall, have a very high win rate when we engage in opportunities. And so we don't expect it to be 100%, of course. But there's going to be more competition. But the magnitude of programs and the quality of these and the size of these programs that we're going after is quite remarkably significant. And we're very pleased with that. It encourages me as a member of this team, just that we've worked really hard to get here. And I we've got a lot of great years ahead of us.

I think the emphasis is shifted to more off-the-shelf proven capabilities, companies that can scale as kind of part of the formula. But it also means they may pick more than one vendor for some of these programs because they wanna kinda hedge their bets on the scalability.

Right. And I guess just as a follow-up, I mean, that part seems to kinda fit what we're hearing about maybe how Golden Dome is awarded. I mean, you called it out a couple of times in the script, but how do you think about award timing or decisions tied to that program just given the accelerated schedule and you know, how much of that opportunity is maybe tied to Golden Dome?

Yeah. So we're really counting Golden Dome specifically as part of the hours 20 programs. Maybe some parts of it, very small parts of it, not much. This 20 programs that I'm referring to is well these are things that we've been pursuing well before the Golden Dome was even announced. And so Golden Dome obviously adds to that, does not subtract from it and that is not inclusive of that number one number two. We really believe that we have got a very compelling solution that the US Department of Defense and our national security agencies and the president and the department can actually implement very quickly almost no R&D cost. These are systems that we've already developed. And a lot of folks are talking about space and missiles in the space and satellites in space. This is about our homeland. And how we protect critical sites on our homeland terrain. And the solutions that we've developed that really addresses the emerging threats against drones and hyper missiles and cruise missiles. And ICBMs. We've got this solution set today, not only the hardware platforms, but also the software solutions that can sense them, that can actually identify them, and then also to actually integrate and operably few different systems within our existing customer footprints to work as an interoperable integrated system. So we've invested quite a lot of energy last several months to architect that solution set. That's why we made the public announcement. With our partner Sierra Nevada Corporation. And we're looking forward to actually engaging with the government. We are engaged with them today. They are obviously getting spooled up on that. And that we really wish the opportunity we'll have an opportunity to actually discuss this with them and show them what we can do right away. And we go as far as, I'm confident that if they give us a chance, we can implement a solution at a site this calendar year. This calendar year, And so we feel very good about it.

Thank you.

You're welcome, Greg.

Our next question comes from Andre Madrid with BTIG. You may proceed.

Hey, good afternoon, everyone. Thanks for taking my question.

Hi, Andre.

Hi, Andre.

On LRR, I know you mentioned last quarter that a decision would likely be released within the next three to six months. You know, is that kind of a is that still on the cards right now? Should we should we expect you know, kind of a decision now imminently?

I do, Andre. I mean, we're talking to the program office of the US Army very, very regularly. They're very impressed and happy with our solution set. We believe that our solution meets the US Army's requirements for the LRR program better than any other solution on the market. We also know that they most likely will down selected two. And as Kevin said earlier, that they would keep at least two vendors sort of warm and engaged in this in this development. We have ramped up manufacturing. We're ready to go. We've been getting ready because we know that the US Army has an urgent, urgent need. Persistent, low-cost ISR at the edge of the battlefield and different theaters is incredibly important. We've got one of the most affordable low-cost solutions out there. And the P550 delivers on that quite well. So I'm hoping that the announcements will come sooner. You know? We're still within that time frame that I mentioned, three to six months. We're very close to getting to that three-month period. It's not actually even been three months yet, but we're looking forward to it. And I believe that the army will make some kind of an announcement quite soon.

Got it. Got it. That's helpful. And I guess sticking on LRR and P550, No. You mentioned the international opportunity that's present. I guess just how big is that on a relative basis? And then kind of in that same mindset, you know, you mentioned that you could potentially see the first P550 order as early as this past quarter. So I just wanted to see if there's any update there.

Yeah. So we do hope that we receive an order. There's definitely opportunities in our pipeline, both domestically, internationally beyond the U.S. Army. For the P550, As I said that the P550, in my personal opinion, is going to be another product that is going to be similar and consistent to the other product franchises that we already have. The success of the P550 with the US Army as part of the LRR program will translate most likely will translate into a global franchise product franchise similar to Puma Switchblade 300, Switchblade 600, Raven, and many other products that we have. And so I already know that we're engaged with multiple countries. Many of them would love to procure P550. We're ramping up manufacturing for that reason. And we hope to actually update you in the next quarter or so with some successful reasons, some wins and some awards.

Awesome. Wahid, appreciate the color. I'll, I'll step away and leave it open to the rest of the queue. Thanks so much.

Thank you, Andre.

Our next question comes from Colin Canfield with Cantor Fitzgerald. You may proceed.

Hey. Thank you for the question. Could you maybe just walk us through the cash flow bridge for the rest of the year and essentially kind of how should we think about normalized working capital balances for the business, you know, maybe as a magnitude terms of total dollars or as a percentage of revenue? Thank you.

Well, as I said, I mean, I think that there's opportunity on the balance sheet, particularly in the unbilled receivables area. You know, our goal is to be cash flow positive and to have some cash conversion this year versus last year. And we feel that we're positioned that now. The only caveat to that is that we as we, you know, look at our plans for growth, we're facing, you know, a situation where several of our products may need to ramp up here. And as I said earlier, the US DOD is putting a premium on manufacturers who can scale up. So it's kind of a balancing act between cash generation and that. But we do feel comfortable with the cash flow savings from working capital that we could offset any increases in the CapEx. But it should be in line with our guidance. But if it goes up a little above that, it would probably be offset by working capital improvement.

Got it. And then just I know it's a normalized view, like, in terms of kind of ex-growth environment. Is there, like, a kind of proxy for how large the account should be? Like, a rough kind of sense?

How long the what? The unfunded or what?

Just, like, how much working capital should go on to the balance sheet? Like, just how much should be good. Yeah. How much?

For the year, all said and done, it go much higher than it is right now.

Okay. Thank you. I appreciate the color.

You're welcome, Colin.

Our next question comes from Trevor Walsh with Citizens. You may proceed.

Great. Hey, team. Thanks for taking the questions. Wanted to just follow-up on the $240 million award for the laser terminals. I understand it's got a three-year delivery period. Can you maybe just give us a rough framework for how that revenue will probably flow, over the course of that and then just kind of what the kind of upside opportunity is, something similar to that deal or and then I just timing of that potential upside? Just, again, I know you're just not specific, but just from a general outlook. Thanks.

Sure, Trevor. So we consider that award a landmark event for us for multiple reasons. Number one, it's a very large contract. Number two, it's technology of the future that is going to make a huge impact in our entire space domain, as a whole for the country. And we're the best in the world in that category. Our technology is second to none. There's nobody that can actually do it better than us. In this area. And I expect this to actually go. So our customer is very motivated to go past. Obviously, the funding is to do a couple of things. One is to finish the development and the first article of the system. And also, the second one is to actually transition it to initial rate low production and prepare for a full-rate production, which will happen a year later. Well over a year later. So that's exactly what we're working on. We're very bullish on that. I think the market for laser communication is huge. You know, there's two reasons for that. Number one, there's lots and lots of satellites in space that is going to require this mechanism of communication. RF communication, as I said earlier, is basically compromisable and compromised already. Satellites need to communicate to the ground and to each other. We've got the secret sauce and the technology to do it. We've got the full position in the market. We've got a solution that works in the customer's Bob. And as more and more satellites come online. The need for this is going to become more and more evident. And so it's a groundbreaking event for us and we feel very good about that. For the long term. So I think it's going to be a significant growth driver over the next several years beyond just fiscal 26 for us once we transition from low-rate production to full-rate production and deployment of the systems out in space.

Great. Thanks for the color. We really appreciate it.

You're welcome, Trevor.

Our next question comes from Austin Moeller with Canaccord Genuity. You may proceed.

Hi. Good afternoon, Wahid, Kevin, and Denise. So just my first question, just looking through the budget and the congressional drafts of the budget, there's about $68 million in there for launch effects, which is, I guess, what they renamed LMAMS. And I presume that does not include FMS to Ukraine. Correct? That's just purely army stockpiling?

That is also my understanding, Austin, that the $68 million that's in the budget for LaunchDefact is all it's only for the U.S. Domestic consumption of the different variants of the FX, because LaunchFX comes in small, medium, and different sizes. And different effects. It's only to the domestic USD needs, not to the FMS customers. And demand.

Okay. And could you just go into a little bit of detail on the energy requirements for LOCUS on an Ampel or DE DEM SHORAD platform? Platform mobile ground vehicle versus the energy budget that's available for a fixed emplacement or on a navy ship, for example?

Yeah. So Austin another area. I'm glad you brought this up because our directed energy LOCUST laser system is trying to solve the problem, the real mission problem of how do you detect and defeat a group one or two or three drone. Or a fast-moving missile, The way you do it, most people are trying to add more energy and pump more energy at the target. But if you're not firing correctly at the target and accurately, it's essentially useless. So that you can make it as big as you like, it going to be effective. The secret sauce to our solution is that we have the best technology when it comes to actually delivering those photons and the laser at the right points of the target. And actually identifying the target classifying it and then pointing the laser directly where you want to actually defeat the Target and make it come up from the fall in the ground. And so that secret sauce is very, very unique to AeroVironment's core competency and expertise. And that's why our solution doesn't require a lot of power. We are roughly about 20 kilowatts. 15 to 20 kilowatt system. And we have plans to go higher. The M. Sure. As another system are much, much more expensive, much bulkier and bigger. And less mobile and maneuverable. Our system can be has been installed. As I said on the call my remarks that we've installed it and we delivered it to the US Army on a JLTV. And we're going to deliver more of them. US Army is very pleased with our system. It's performing really well. On various tests and missions. And we believe that this is a market that we're just scratching the surface today. And I believe it's going to be a very large part of the counter UAS and counter hypersonic missile defense system. Including the Golden Dome. So it has multiple implications in the market for various missions. And we're actually quite encouraged and enthused by that.

That's very interesting. Thank you for the details.

You're welcome, Austin.

Our next question comes from Austin Bollig with Needham. You may proceed.

Hi. Thanks for taking my question and congrats on the solid results guys. Question is how do deal with your guys' full year Yeah. My question has to deal with the full-year guidance. I think you guys have discussed this in prior questions. But if I'm understanding you right, with all of this big funding that was in the OBD, has yet to have been, allocated to specific departments, is it fair to assume that none of that is baked into your current guidance so might leave some room to upside if current contracts flow over the next couple quarters?

So to us, if some of that is baked in, but not all of it. And the reason for that is because it's a very fluid sort of timing in the market. Those funding of the OBD as I said, it hit all the accounts within our customers systems them to be able to contract that out. Now how long it takes to do that really matters as to how much we can deliver these this year. Primarily because of how much time we're going to have left in the year to be able to execute against it. There's only so much planning and at risk that we can go given the situation that we're in right now. So for that reason, I would say we feel very strong about our current guidance. Some of that OVB dollars is baked into our guideline guidance and our expectations. But some of it's not. And then every day that goes by by the budgets not being approved or continuing resolution going forward or the dollars not been hitting their accounts, It could actually actually adds more risk for that not to happen this year, but it will happen the fall year. Regardless, we're going to have a great year, and we're gonna most likely gonna finish the year strong with a very strong pipeline in bookings. That can set us up for even more success beyond fiscal 26.

Got it. Just a quick follow-up. Like, within, of that funding that you guys are including in your current guidance, like, which technologies or products is that focused in? Is that more on the UAF side, counter UAS? Or just love some color there?

Oh, Austin, so it is so difficult to just name one particular product or technology that we have relative to the priorities of the defense. I am a very firm believer that the prospects for growth and prosperity for AeroVironment has never been better. And going to have a fantastic year this year. And we're positioned and poised to go even more beyond this fiscal year. There is money and there's funding and there's need urgent requirements for drones. For loitering munitions, for counter UAS RF, for lasers, for the Golden Dome, for software solutions that we have as our AeroVironment Halo is therefore our Titan family of our jammers. There's money for space laser communication and needs for that. It's also for phased arrays and scar and badges. So that we have. I think the opportunities are for us, both domestically, internationally, has never been better. And we worked hard over the last decade to position ourselves for this type of an opportunity that really is remarkably unique, in my view. And so we're very pleased with the execution of our team. I'm pleased with our results and how we put investments we've made and the best we've made and the company we've built to position ourselves. And we look forward to updating you in the quarters to come.

Awesome. Well, thank you guys. Best of luck.

Thank you. Thank you.

Thank you. I would now like to turn the conference back to Denise for any closing remarks.

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 Investor 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.