AeroVironment (AVAV) Q4 2025: Backlog Surges 82% as Blue Halo Deal Expands $1.2B Bookings Pipeline
AeroVironment’s transformative Blue Halo acquisition and record $1.2B bookings mark a strategic inflection, with funded backlog up 82% and double-digit organic growth across core defense segments. The company’s realignment to two new reporting segments and a ramp in capital investment signal a bolder posture to capture surging global demand for autonomous and multi-domain defense tech. FY26 guidance points to accelerating revenue, but execution hinges on U.S. DOD funding cycles and integration of new domains.
Summary
- Backlog Momentum: Funded backlog leapt 82% on robust demand for autonomous and loitering munitions.
- Portfolio Expansion: Blue Halo integration broadens reach to space, cyber, and directed energy markets.
- FY26 Growth Setup: New segment structure and capacity investments position AVAV for double-digit growth, but contract timing risk remains.
Performance Analysis
AVAV closed FY25 with record revenue and profitability, driven by broad-based demand for its autonomous and loitering munitions platforms. Fourth quarter revenue climbed sharply, with Loitering Munition Systems (LMS) up 87% and the core Uncrewed Systems (UXS) segment delivering solid gains despite lower full-year UXS revenue, reflecting reduced Ukraine sales. Ukraine revenue fell to 18% of total for the year, with management signaling this will drop below 5% in FY26 as U.S. and allied spending broadens.
International sales represented 52% of total revenue, highlighting AVAV’s growing global franchise and the strategic impact of NATO and allied defense spending increases. Adjusted EBITDA margin improved, fueled by higher revenue, stable product margins, and lower R&D as a percent of sales, though service margins declined due to mix. Operating expenses rose, reflecting a deliberate investment in global sales and bid activity, as well as integration costs related to Blue Halo.
- Loitering Munition Surge: Switchblade contracts and international orders fueled outsized LMS growth, with a historic $1B U.S. Army IDIQ win.
- Global Franchise Deepens: Orders from eight new countries and expanding European demand underscore AVAV’s international traction.
- Profitability Mix Shift: Adjusted gross margin dipped modestly on service mix, but product margins held steady and EBITDA rose 15% YoY.
Record $1.2B in bookings and a $726M funded backlog set the stage for FY26, but working capital and integration costs will be key watchpoints as AVAV absorbs Blue Halo and ramps new product lines.
Executive Commentary
"We closed our acquisition of Blue Halo, further strengthening our industry-leading position as the next generation defense tech prime with an all-domain portfolio of innovative solutions across air, land, sea, space, and cyber... we're setting our fiscal year 26 revenue guidance between $1.9 billion to $2 billion."
Waheed Nawabi, Chairman, President, and CEO
"Adjusted EBITDA for Q4 was $61.6 million, up from last year's Q4 of $22.2 million, driven by higher revenue, higher gross margins, and lower investments in R&D spending, partially offset by higher SG&A expenses... Fiscal year revenue is expected to be between $1.9 billion and $2 billion."
Kevin McDonald, EVP and CFO
Strategic Positioning
1. All-Domain Expansion via Blue Halo
The Blue Halo acquisition is transformative, moving AVAV from a pure-play unmanned and munitions specialist to a multi-domain defense tech integrator. The addition of space, cyber, directed energy, and electronic warfare capabilities aligns AVAV with the U.S. Department of Defense’s highest priorities and expands its addressable market well beyond legacy platforms.
2. Segment Realignment to Autonomous and Space/Cyber
Management is reorganizing into two new reporting segments: Autonomous Systems (AXS), which includes legacy unmanned, loitering, and robotic products, and Space, Cyber, and Directed Energy (SCDE), reflecting the integration of Blue Halo’s advanced technologies. This structure supports cross-domain solution selling and clearer visibility for investors on growth drivers.
3. Production Scale and Global Reach
AVAV’s ability to rapidly scale manufacturing capacity, including a new Utah facility for Switchblade production, is a key differentiator as global demand for autonomous and loitering munitions accelerates. The company’s installed base now exceeds 50,000 platforms across 100+ allies, providing a durable installed base and channel for new product introductions.
4. Product Innovation Pipeline
Three new products—P550, Jump 20X, and Red Dragon— launched in FY25, targeting emerging requirements for AI-driven autonomy, shipboard UAS operations, and one-way attack drones. Management sees multi-hundred-million-dollar backlog potential for these platforms within the next two to three years, with early Red Dragon revenue already recognized and P550 positioned for near-term U.S. and international wins.
5. Capital Allocation and Integration Execution
CapEx is rising above historical levels as AVAV invests in new capacity and technology, including space communications and directed energy. Integration of Blue Halo brings cost synergy targets ($10M+ in year one) and incremental revenue opportunities, though management notes that full benefits will take time to materialize.
Key Considerations
AVAV’s FY25 marks a pivot from a legacy unmanned systems provider to a diversified, multi-domain defense tech leader. The company’s ability to scale, innovate, and win in adjacent markets is being tested as it absorbs a transformative acquisition and aligns with shifting global defense priorities.
Key Considerations:
- Defense Budget Cycles: FY26 revenue guidance range reflects uncertainty in U.S. DOD contract timing, with upside tied to faster budget approvals and order flow.
- International Demand Tailwind: NATO’s potential 5% GDP defense spending pledge and European rearmament could drive sustained international growth, especially in loitering munitions and counter-UAS.
- Integration Complexity: Blue Halo brings scale and capability, but also integration risk, higher SG&A, and the need to harmonize disparate business models and reporting structures.
- Product Mix and Margins: Shift toward higher-mix, advanced tech segments (space, cyber, directed energy) may pressure margins and working capital near-term but supports long-term strategic value.
- Innovation Leverage: R&D investments and new product launches (P550, Red Dragon, Jump 20X) are critical to capturing next-gen defense opportunities and maintaining competitive moat.
Risks
Execution on Blue Halo integration, realization of cost and revenue synergies, and the ability to convert record backlog to revenue are central risks. FY26 performance is exposed to U.S. and allied defense budget cycles, with contract timing and congressional approvals potentially driving volatility. Rising CapEx and SG&A may weigh on near-term free cash flow as AVAV scales for growth and absorbs integration costs.
Forward Outlook
For Q1 FY26, AVAV expects:
- Revenue split roughly 45% in the first half, 55% in the second half of FY26
- Adjusted gross margins starting in the high 20% range, rising to low 30% by year-end
For full-year 2026, management guided:
- Revenue of $1.9B to $2.0B (up ~15% YoY on pro forma basis)
- Adjusted EBITDA of $300M to $320M
- Non-GAAP EPS of $2.80 to $3.00
Management cited 70% revenue visibility at the midpoint—higher than historical averages—driven by long-term contracts and a diversified backlog. Key drivers include U.S. DOD contract timing, international order conversion, and realization of Blue Halo cost synergies.
- Autonomous Systems segment revenue expected between $1.2B and $1.4B (20%+ growth)
- Space, Cyber, and Directed Energy segment revenue between $700M and $900M (double-digit growth)
Takeaways
AVAV’s record bookings and backlog, combined with the Blue Halo acquisition, reposition the company as a scaled, multi-domain defense tech leader. The ability to convert backlog, deliver new products at scale, and integrate advanced domains will determine the pace and durability of growth.
- Multi-Domain Expansion: AVAV is now positioned to meet the U.S. and allied defense priorities across air, land, sea, space, and cyber, with a platform for cross-selling and innovation.
- Execution Watchpoints: Investors should track contract conversion, Blue Halo integration, and margin evolution as CapEx and SG&A rise in support of growth.
- Long-Term Opportunity: If AVAV executes, the company could become a primary beneficiary of global rearmament and next-generation defense tech adoption, but risks around timing and integration remain material.
Conclusion
AeroVironment’s FY25 results and Blue Halo integration mark a strategic leap, positioning the company to capture global demand for autonomous and multi-domain defense solutions. The path forward is opportunity-rich but demands flawless execution on integration, contract timing, and capacity expansion to realize its full potential.
Industry Read-Through
AVAV’s record backlog and segment realignment signal a new era in defense tech, where scale, autonomy, and multi-domain integration are table stakes. The company’s surge in international sales, especially to NATO and European allies, highlights a global pivot to rapid rearmament and the prioritization of modular, AI-enabled, and battle-proven unmanned systems. For peers, the bar is rising on both innovation and the ability to deliver at scale—those lacking both will face increasing strategic irrelevance. The integration of cyber, space, and directed energy with legacy defense platforms is now a sector-wide imperative.