AeroVironment (NASDAQ:AVAV) executives said they expect U.S. defense funding to begin flowing more meaningfully over the next several months, outlined production expansion plans for its loitering munitions portfolio, and described counter-drone systems as a major near-term growth driver, speaking at the JPMorgan Industrials Conference.
Budget timing and priority areas
CEO Wahid Nawabi attributed recent funding delays to the government shutdown, the reconciliation bill process, and a continuing resolution, noting that the federal budget was approved “a little while ago.” Nawabi said dollars are now moving from Congress to the Office of Management and Budget and into service accounts, and that the company is “starting to see some trickle” of funding.
Loitering munitions: differentiation, upgrades, and capacity expansion
Nawabi emphasized that AeroVironment has long-standing positions in markets it helped define, saying the term “loitering munition” did not exist before Switchblade and that Switchblade has become “synonymous” with the category. He described the company as producing at high volumes today under U.S. Department of Defense rigor for certification, safety, logistics, and training.
In discussing market dynamics, Nawabi contrasted AeroVironment’s products with low-cost FPV drones, which he described as a “1 km to 5 km conflict problem and solution” and a smaller portion of the addressable market. He said AeroVironment intentionally chose not to compete in that FPV segment, arguing it is not a larger mission set and is difficult to generate attractive economics.
The CEO pointed to product iteration as a key competitive advantage, referencing multiple generations across Switchblade variants and highlighting recently announced and introduced systems, including Switchblade 600 Block 2, Switchblade 300 Block 20, and Switchblade 400 for “launched effects” across platforms such as armored vehicles, helicopters, and aircraft. He also described Red Dragon as a complementary one-way attack offering with different mission profiles.
On specific upgrades, Nawabi cited a Switchblade 300 Block 20 feature that allows a “user field swappable warhead,” including a certified explosively formed penetrator (EFP) option. He said three EFP warheads weigh about 25 pounds total and can be carried by one person, and asserted the capability can defeat most armored assets in the Ukraine battlefield aside from main battle tanks. For Switchblade 600, he described maritime capability and cited improvements including gimbal enhancements, anti-jamming software and algorithms, and modular radios.
He also said the company is expanding manufacturing capacity. Nawabi stated AeroVironment doubled its business and production last year and is building another plant with “$2 billion a year worth of production capacity” for Switchblade or other products, expected to come online later this calendar year and into the beginning of the next fiscal year.
Counter-UAS: Titan, directed energy, and layered defense
Nawabi framed counter-drone demand as rising sharply, calling the Ukraine war an inflection point for drones and loitering munitions and the Iran conflict an inflection point for counter-drone systems. He described AeroVironment’s counter-UAS strategy as a multilayered defense model:
- RF detect-and-defeat jamming: Nawabi said the Titan series is in full-rate production and called it the “world’s best deployed, successful” system in its category.
- Directed energy: He argued directed energy is the “Holy Grail” for counter-drone defense, particularly as adversaries field systems that are not reliant on RF communications. He said LOCUST is positioned for this need and noted the company is competing on what he described as the first U.S. military program of record in directed energy for production-level procurement.
- Kinetic kill: He referenced Freedom Eagle 1 as a third layer if jamming and directed energy fail, saying it is further behind in adoption and that development is “another year and a half or two away.”
Nawabi also discussed the economics of directed energy, asserting it can reduce the cost-per-target from “millions per missile” to “$3-$5 per shot.”
On non-military demand, he said timing is difficult to predict, but he expects commercial and civil adoption to increase following a recent change allowing certain civilian uses. He cited potential applications including stadiums, music festivals, hospitals, and critical infrastructure. CFO Kevin McDonnell added that a law change allows state police to use Titan systems and said the company has already seen demand picking up from state governments.
Nawabi said international demand—particularly in the Gulf—is constrained more by production capacity than demand, adding the company is “making them as fast as we can.” He stated AeroVironment more than doubled capacity this fiscal year and is increasing Titan production capacity to “$500 million” next fiscal year. He also described Titan as a fixed-price, commercial item offering with a price list, and said it came from the BlueHalo portfolio. Nawabi said the product line is “highly profitable” and “EBITDA favorable,” and that Titan is already being sold to international customers, with public disclosures of effectiveness in Ukraine.
SCAR cancellation, BADGER, and space-related opportunities
Asked about SCAR, Nawabi said he was limited in what he could disclose due to contractual sensitivities. He said AeroVironment believes the capability addresses a high-priority gap for the Department of Defense and the Space Force. Nawabi said the program involved “scope creep” and that the company sought to develop and deliver the product as a commercial item, which he described as increasingly attractive to the DoD.
He said the parties attempted to renegotiate the contract but faced two outcomes: agreement on the existing contract or cancellation and restart. Nawabi said the company plans to continue developing the capability as a commercial item using its own investment, citing the market opportunity across geosynchronous satellites, including non-defense satellites. He described the company’s phased array BADGER system as enabling communication with multiple satellites (up to 20 simultaneously) with higher bandwidth and digital pointing rather than a traditional dish.
Nawabi said the government has indicated it will recompete the program and that AeroVironment intends to compete, with a goal of delivering an “off the shelf” solution.
McDonnell said SCAR represented about 5% of revenue last year and that the company still expects strong growth this year and “double-digit growth next year” for the company overall, with SCAR expected to be less than 5% of revenue going forward.
On a recent write-down, McDonnell said it related to the broader space business, not just SCAR. He described other space-related areas including long-haul laser communications, noting a “$500 million contract,” as well as a “gunsights” business, Panther hypersonic missile tracking, and other programs. He said the writedown was about $150 million on an asset base he described as $3 billion, and that it was non-cash.
Cyber and mission systems and cash flow dynamics
Discussing BlueHalo’s cyber and mission systems business, Nawabi said it is not expected to be the fastest-growing segment and was impacted by DoD activity early in the fiscal year. However, he said a $350 million sales level is “very doable,” and that the business is expected to grow over time, though “very slow, single-digits.” He described the work as mission-critical cybersecurity operations, both offensive and defensive, serving military and intelligence community needs.
On cash flow and working capital, McDonnell said working capital growth was driven primarily by significant growth in Switchblade/loitering munitions as well as product transitions to new generations, which created a “log jam” in unbilled receivables. He said the issue “seems to be behind us” and that the company expects progress in the fourth quarter, with further improvement in subsequent quarters.
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.
