AeroVironment (NASDAQ:AVAV) executives told investors at William Blair’s 46th Annual Growth Stock Conference that the company sees expanding opportunities across drones, loitering munitions and counter-drone systems, while also emphasizing ongoing capacity investments tied to programs such as Switchblade and Freedom Eagle-1.
The discussion, hosted by William Blair aerospace and defense analyst Louie DiPalma, featured Wahid Nawabi, chairman, president and CEO of AV, and Sean Woodward, CFO of AV. DiPalma noted that AV is the branding of the company formerly known as AeroVironment following its merger with BlueHalo.
Potential Pentagon Investment Seen as Positive for the Drone Sector
“They believe this is a strategic area for our national security as a country, and it’s an area that the U.S. needs to accelerate investments in adoption, in development of capability and capacity,” Nawabi said.
He added that AV is “actively engaged” with the effort on several fronts, though he said the initiative is primarily focused on startups that lack capital, balance sheet strength or production capacity. Nawabi said AV could potentially help the Pentagon and startups scale capabilities in areas where the company has expertise.
AV Frames Business Around Four Portfolio Areas
Nawabi described AV’s business as broadly consisting of four “buckets,” while noting the company was in a quiet period and he could not comment on fourth-quarter results. Speaking generally, he said that in a roughly $2 billion revenue business, about $500 million would be in non-lethal drones across Group 1, 2 and 3 platforms, including products such as Puma, Raven, Puma LE, P550, JUMP 20, JUMP 20-X and VAPOR.
He described a second bucket of roughly $600 million as lethal drones, including Switchblade 300, 400, 500 and 600, along with one-way attack drones such as Red Dragon. Nawabi said that market has grown rapidly since the Ukraine conflict highlighted the role of loitering munitions and one-way attack systems.
The third bucket is counter-drone systems, where Nawabi said AV takes a layered approach. He said the company’s Titan radio-frequency jammers provide the first layer, while its LOCUST directed-energy laser systems provide the second. The third layer is kinetic kill, including the Freedom Eagle-1 interceptor.
LOCUST Laser Opportunity Described as Early but Large
Nawabi said the market opportunity for laser-based counter-drone systems is difficult to size because it is still emerging, but he described it as potentially “in the billions of dollars long term.” He said AV is on its third-generation LOCUST product, the X3, and is a contender for the U.S. Army’s Enduring High Energy Lasers, or EHEL, program, which he described as a roughly $500 million opportunity.
According to Nawabi, AV’s X2 product is in the 20-kilowatt to 25-kilowatt range, while the Army program is targeted around 30 kilowatts. He said a 30-kilowatt system can effectively address Group 1, 2 and 3 drones, with typical engagement ranges of 1 kilometer to 5 kilometers depending on the target and environmental conditions.
Nawabi said the advantage of directed energy is cost. He said lasers can reduce the cost of defeating a drone from missiles costing millions of dollars to “less than $10 a shot.” He added that AV’s key differentiation is not the laser itself, but the tracking and targeting software that allows a moving vehicle to detect, track and engage drones while operating in a 360-degree environment.
Freedom Eagle-1 and Switchblade Capacity Expansion
Woodward said AV is in the development and testing phase for Freedom Eagle-1, after being selected over Raytheon for the program last year. He said the company is working through development and safety confirmation testing, with a goal of moving into low-rate initial production in about 18 months and then into full-rate production as quickly as possible.
Woodward said production is planned for AV’s Huntsville, Alabama, facility, where the company has announced an expansion. Nawabi said the full-rate production price target under the program requirement is about $150,000 per interceptor, compared with missiles costing $1 million to $5 million. He said Freedom Eagle-1 is designed for Group 1 through 3 threats, primarily Group 3, at ranges greater than 5 kilometers, and is radar-agnostic.
Woodward also discussed AV’s Salt Lake City facility, which he said is being built to add about $2 billion of additional revenue capacity. He said Switchblade 600, the SB 400 solution for the LASSO program and MAYHEM are expected to be built there. Woodward said AV is seeing demand from the U.S. military, SOCOM, the U.S. Army and international customers through foreign military sales and direct commercial sales.
Nawabi said the U.S. military has provided some funding to accelerate and double Switchblade 600 production, although he characterized the amounts as not large. He said AV has already doubled or quadrupled production in recent years based on demand signals and orders.
Other Programs and International Demand
Woodward said AV’s P550 was designed for the Army Long Range Reconnaissance Program and has also received international awards. He said the JUMP 20-X was designed for maritime operations and has gained traction with Marine Expeditionary Units, the U.S. Navy, the Coast Guard and international customers. Woodward said AV expects the JUMP 20-X to be a strong candidate for the Army brigade-level program replacing FTUAS.
Nawabi also discussed Jackal, a loitering munition co-developed with Northrop Grumman for the Army’s Long Range Precision Munition program. He described it as a “sprint loitering munition” using jet propulsion to reach a target quickly before slowing down and behaving similarly to a Switchblade.
On international demand, Woodward said AV has decades of experience selling globally, including through offsets, industrial participation agreements, in-country representatives, legal entities, joint ventures and acquisitions such as Telerob in Germany. He said AV can pursue local production and contract manufacturing where needed to meet customer requirements.
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.
