AeroVironment (NASDAQ:AVAV) executives said fiscal third-quarter results came in below internal expectations as government funding delays pushed some anticipated orders out by a quarter or two and as the company made adjustments in its Space business following changes to a major U.S. Space Force program.
Quarterly results affected by timing and Space program changes
Chairman, President and CEO Wahid Nawabi said the company “fell short on expectations” in the quarter, attributing the shortfall primarily to revenue timing and adjustments in the Space business. Nawabi pointed to industry-wide delays in government funding and a shutdown that shifted the timing of orders the company expected to receive in the third quarter.
Nawabi said the U.S. Space Force concluded it would terminate the existing contract for convenience, pay allowable incurred costs with a fee, and enable AeroVironment to recompete under revised requirements and the company’s proposed solution. Management emphasized it remained committed to delivering the capability and transitioning the phased-array solution to a commercial offering and business model.
Backlog growth and program awards highlighted
Despite the quarter’s challenges, management said order flow strengthened and contributed to a higher funded backlog. Nawabi said funded backlog reached $1.1 billion in the third quarter, with year-to-date total awards of $4.6 billion, which he described as another company record.
In the Autonomous Systems segment, which made up 68% of third-quarter revenue, AeroVironment highlighted several awards:
- A five-year sole-source IDIQ contract worth $874 million from the U.S. Army supporting foreign military sales demand across UAS and counter-UAS product lines.
- A $168 million task order from the U.S. Army for Switchblade 300 Block 20 and Switchblade 600 Block 2 loitering munition systems, which management said marked the Army’s first procurement of the next-generation Switchblade product line.
- A $23 million contract from the U.S. Marine Corps for additional deliveries of the Titan SV counter-UAS system.
- A $13 million contract to provide P550 UAS for the U.S. Army’s Long Range Reconnaissance program.
Nawabi also discussed scaling initiatives, including continued build-out of a new 140,000-square-foot manufacturing facility in Salt Lake City, Utah, expected to be operational in about a year. He said the site has the potential to produce more than $2 billion worth of Switchblades or other AeroVironment products annually.
Segment performance and margin commentary
Executive Vice President and CFO Kevin McDonnell reported third-quarter revenue of $408 million, up 143% year-over-year as reported, and up 6% on a pro forma basis. He said legacy AeroVironment organic growth was 38% year-over-year in the third quarter. The company ended the quarter with approximately $3 billion of unfunded backlog, including about $1.5 billion related to the SCAR program, which management said would be adjusted due to the Space Force’s intent to terminate for convenience.
In Autonomous Systems, revenue was $279 million, a 25% increase versus pro forma fiscal 2025. McDonnell said Uncrewed Aircraft Systems led the growth, with more than a 50% increase compared with the prior-year pro forma quarter, while Precision Strike and Counter-UAS products improved more than 21% year-over-year on a pro forma basis.
The Space, Cyber, and Directed Energy segment reported $121.9 million of revenue, a 19% pro forma decline year-over-year. McDonnell attributed the decline to the SCAR stop-work order and U.S. government funding delays. Within the segment, Space and Directed Energy products declined 14% in the quarter, while LOCUST directed energy counter-UAS continued to grow. Cyber and Mission Systems revenue declined 22% pro forma, which management said reflected discontinued programs and funding delays associated with the shutdown.
Adjusted gross margin was 27% in the quarter, flat sequentially but lower than the prior-year quarter’s 40% adjusted gross margin. McDonnell said the combined company’s business mix has shifted to a higher service mix and includes several products in earlier stages of maturation. He also cited last-minute shipping and supply chain issues that pushed $40 million of high-margin revenue into the fourth quarter. Management said it expected adjusted gross margin to improve to the low- to mid-30% range in the fourth quarter and projected full-year adjusted gross margin in the high-20% to low-30% range.
The company posted adjusted EBITDA of $44 million, compared with $22 million a year earlier as reported, and adjusted earnings per diluted share of $0.64 versus $0.30 in the prior-year quarter.
Goodwill impairment tied to SCAR stop-work order
McDonnell said the SCAR stop-work order triggered a goodwill impairment test and resulted in a non-cash $151 million goodwill impairment charge. He said the re-evaluation reduced the acquisition-date value of the acquired space business by approximately 17%, and management did not expect further impairment adjustments as a result of the contract termination for convenience notification.
Updated guidance and leadership transition
Management reduced its fiscal 2026 outlook, with McDonnell citing the SCAR-related impact alongside funding delays and revenue shifts. AeroVironment now expects fiscal 2026 revenue of $1.85 billion to $1.95 billion and adjusted EBITDA of $265 million to $285 million. The company projected non-GAAP adjusted EPS of $2.75 to $3.10 and said visibility to the midpoint of the revised revenue guidance range was 98%.
Nawabi and McDonnell reiterated expectations for a record fourth quarter, supported by the funded backlog and the anticipated conversion of delayed orders. They also discussed efforts to transition certain offerings—such as LOCUST, laser communications terminals, and laser communication gunsights—toward commercial product models intended to support scalability and profitability over time.
The call also included an update on leadership. Nawabi thanked McDonnell for his contributions and noted McDonnell plans to retire at the end of July, remaining with the company during the transition to a new CFO.
About AeroVironment (NASDAQ:AVAV)
AeroVironment, Inc (NASDAQ:AVAV) is a technology company specializing in unmanned aerial systems (UAS), tactical missiles and precision loitering munitions, electric vehicle charging and scalable energy systems. Headquartered in Monrovia, California, the company develops solutions for defense, public safety and commercial markets. Their offerings include small UAS for intelligence, surveillance and reconnaissance, as well as advanced weapons systems designed to meet the needs of modern military operations.
The company’s unmanned aerial systems portfolio features platforms such as the Raven, Puma and Switchblade series, which are deployed by the U.S.
