AeroVironment Inc Q1 FY2026 Earnings Call

Good day and thank you for standing by. Welcome to Aero Vireman's first quarter and fiscal year 2026 earnings conference call. After the speaker's presentation, there will be a question and answer session. To ask a question during the session, you will need to press star one one on your telephone. 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 Paccioni. 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 Paccioni, 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-K and other filings with the SEC, in particular in the risk factors and forward-looking statement portions of such filings. Copies are available from the SEC on the AeroVironment website, www.abinc.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 investor 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, September 9th, 2025. The company undertakes no obligation to update any forward listing statements, whether as a result of new information, future events, or otherwise. Joining me today from Arrow Environment are Chairman, President, and Chief Executive Officer, Mr. Wahid Nawabi, and Executive Vice President and Chief Financial Officer, Mr. Kevin McDonald. 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 opportunities 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 the first quarter of fiscal year 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 multi-billion-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, AB 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 a B 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 and the space domain and represents a multi-billion dollar opportunity for a AV 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 improvement track record, AV is well-positioned to efficiently scale our laser-con manufacturing to capture growing demand in this multi-billion-dollar new market. In addition, AV was also recently awarded a $95 million contract to further the development and scale manufacturing of our Freedom Eagle I, or FE-1, for long-range kinetic interceptor program for the U.S. Army. This missile is designed to deliver extended range, higher altitude, and all-weather performance against a broad set of emerging threats. AB's FE-1 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 FE-1 to affordably defend our nation against such emerging threats. This award enables AB to enter and disrupt a multi-billion dollar missile defense market. The U.S. Army considers our innovative FE-1 solution the leading capability in this critical area. We're looking forward to sharing future progress with you on FE-1 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 infantry squad vehicle-mounted Locust laser weapon system under the U.S. 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 U.S. Army's objective of operationalizing directed energy capabilities to defend against the emerging proliferation of drone warfare. Our LOCUS laser weapon system use of directed energy is a critical emerging technology that is key to defending against Group 1 through 4 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 AV 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 Group 2 UAS systems, along with training to the U.S. 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 U.S. Army's program requirements better than any other competitor solution on the market. This Program of Record represents approximately one billion dollars in value over the next five years. NAB is very well prepared to execute and deliver on it. The successful adoption of our P550 with the U.S. 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, Huma, 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 when B we unveiled AV Halo a software platform and ecosystem that is hardware agnostic and unifies our suite of mission ready software tools and offerings AV 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. AV Halo blends the best of both legacy AV and Blue Halo 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 AV 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 customer-driven solutions increases, we are focused on leveraging our strategic partnerships to unlock new opportunities for ABE, 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 through four unmanned aerial systems advanced cruise missiles and other next generation aerial threats with our broad suite of technological solutions AV is uniquely positioned to help protect our nation by implementing a cost-effective solution for sovereign missile defense second we signed the memorandum of understanding in Denmark for expanding airport utilization for medium 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, uncouth systems across NATO. In summary, we're currently pursuing more than 20 different programs of record, which exceed 20 billion dollars 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.

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, FE-1. Now on to our second segment, Space, Cyber, and Directed Energy, or SCDE segment. Our SCDE segment posts the 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, we announced yesterday a $240 million contract award for our long-off 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, LOCUS, will be key growth drivers for this segment in the future.

Let me conclude by comments with the following.

With the acquisition and successful integration of BlueHalo, 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. AV'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. AV 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 McDonald 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, for 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 1st, so the results for Q1 and projected FY26 include the financial activity from Blue Halo. I'll briefly comment on the results of the quarter and then turn to guidance for the remainder of FY26. In summary, we are very pleased with the results of the new AV on all metrics delivering solid top-line and EBITDA growth. As Waheed mentioned, our equity and debt raise in July positioned us well for growth with over $700 million of cash and investments on the balance sheet. Waheed also mentions 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 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. We expect Ukraine revenue to remain between the 5% and 8% of total revenue in FY26. When compared to pro-forma revenue for the first quarter of FY25, several of our products realized tremendous growth. SysPlate 600 product had over 200% revenue growth. CHEM20 had over 6x revenue growth. Our Locust-directed energy counter-UAS systems also had 5x pro-forma revenue growth. Titan revenues nearly doubled, a reflection of the strengths of our counter-UAS RF business, and finally, Badger, the 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 we expect to receive in Q2. As mentioned on prior audience call, AV is now operating under two reporting segments. Autonomous Systems, or AXS, and Space, Cyber, and Directed Energy, or SCDE. AXS ended the quarter with strong, with $285 million of revenue, which represented a 22% increase over FY25 pro forma revenues. Of the total of the quarter, about 35% came from Switchblade 600 products, 15% came from Puma products, 9% from Switchblade 300, 7% from Kenner UAS-RF, and 6% from JUMP20. STPE ended the quarter with $169 million in revenue, which represented a 12% increase over Proforma FY25. Of the total for the quarter, approximately 19% came from Badger satellite ground station, 12% from Locust-Directed Energy Kenner UAS systems, and 12% from our advanced R&D businesses, which focuses on research, development, testing, and evaluating emerging technologies to endure their effective transition to the warfighter. In terms of adjusted EBITDA, slides 10 and 11 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 to $37.2 million, as reported, primarily due to the incremental blue-handled results. EBITDA as a percentage of revenue ended at 12.4% of revenue, which 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 gap gross margins finished at 21% versus 43% in the prior year. The decrease in gap 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 and other non-cash accounting expenses of $33.7 million over FY25. First quarter adjusted gross margins were 29% versus 45% in the first quarter of FY25. 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 that adjusted gross margins should continue to improve throughout the year, ending up in the mid-30s by Q4, with an average up for the year in the low 30s. Moving on to operating expenses. Reported gap 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 with Luhala. As a percentage of revenue, adjusted SG&A in the quarter was 14.3% of revenue versus 17.3% in FY25. 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, or 13% 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% and 7% revenue range. Now turning to gap earnings. In the first quarter, the company generated a net loss of $67.4 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 and 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 euro a year. This was offset by an additional $6.3 million of income from operating activities and a decrease in taxes of $16.7 million. Slide 12 shows a reconciliation of GAAP and adjusted or non-GAAP for the DPS. The company posted adjusted earnings per dilute share of $0.32 for the first quarter by fiscal 2026 versus $0.89 for dilute share for the first quarter of fiscal 2025. Moving to the balance sheet. At the close of the first quarter, our total cash investments amounted to $722 million. As most of you know, we completed a $1.7 billion financing during the first quarter, of which approximately $950 million used to pay down the debt from the Blue Hazel acquisition. We now have a completely new balance sheet as a result of the Blue Hazel 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 the first quarter of fiscal 2026 finished at $1.1 billion. Unfunded backlog grew to $3.1 billion at the end of Q1. I should note that we include in our visibility from expected revenue through 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 our unfunded backlog to continue to grow significantly during the second quarter due to the recently announced contracts and new contracts in the pipeline. Finally, I would like to provide you with our updated FY26 guidance. On page six of the presentation, we provide fiscal 2026 guidance. Fiscal year revenue is still expected at between $1.9 and $2 billion. Adjusted EBITDA remains between $300 million and $320 million. But a 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 rate represents nearly 15% growth over the performa FY25. So, as mentioned previously, our visibility to the midpoint of the revenue guidance rate is at 82%, which is at the higher end of the 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 U.S. DOW 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 second quarter of fiscal year 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 for $1.1 billion. Unfunded backlog is now at $3.1 billion. dollars. Third, we introduced several innovative solutions, Encounter UAS, space communications, and direct energy, among other areas that are directly aligned to our customers' urgent priorities and represent multi-billion-dollar market opportunities over the next several years. And fourth, we're maintaining our fiscal year 2026 guidance with revenue between $1.9 billion dollars and two billion dollars. Our strong first quarter results underscore the confidence we have in the future of AV 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 island Congress, the current administration, and our customers, we're confident that AV will not be negatively affected should Congress fail to pass a budget resulting in a continuing resolution. The support for our solutions and the urgency behind the need 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 AV 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 star one one on your telephone. Please stand by while we compile the Q&A roster. We respectfully ask that 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 afternoon, Wahid, Kevin, and Denise. Really nice results. Maybe then, Wahid, just to start off, obviously good revenues. You didn't change the full-year outlook. I think 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 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, Ken. Yes, we're very pleased with the results. I'm very pleased also with the integration of Blue Halo with AV. As you know, this is no easy feat. And this is a very large undertaking, combining two of the best of great 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 continuing resolution, which we don't believe that it's going to affect our fiscal 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 U.S. DOD is going through a lot of changes and transformation in 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. So we're going to be the poster child of what a defense tech company in the front 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 um you know the unleashing of american drone dominance and how do you think um price will be impacted over time by competition like you guys you know on your switchblades you know specifically um i think you guys have talked about you know low hundreds of thousands of dollars um as the price there if there's more competition over time is there risk that that price is going to go down and you know margins will will suffer thanks anthony thank you for that question, and great to talk to you again.

Obviously, the focus of the U.S. 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. AV 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 in 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 USUD believes that we've got to scale and we got to grow but we really feel strong about our portfolio there are several several key competitive differentiators that enables us to actually lead and continue to stay as the leader and if 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. We have scaled repeatedly multiple times in our history, and we have a unique competitive advantage in terms of having the manufacturing capacity to produce these things at urgent and very short cycles based on the demand and urgency and priority of our U.S. duty and our allies. That is a clear, clear advantage for AV 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 at our categories, which is, you know, Group 2 and above.

Great. Thank you guys so much.

You're welcome, Anthony.

Our next question comes from Louis De Palma with William Blair. You may proceed.

Good afternoon, Wahid, Kevin, and Denise.

Hey, Louis. Hi there.

Hi. You announced the AV Halo Unified software platform last week. Can you talk about how your software integrates with third-party hardware providers in addition to the AV 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 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, et cetera.

You're welcome, Luis. Of course, AV Halo software, which we just announced, is really a great example of how we brought the best of both worlds from AV's portfolio of software solutions as well as Blue Halo software solutions into one cohesive umbrella of an ecosystem and platform that allows us to deliver and innovate in lots and lots of different areas of this entire market. There's certainly a major, major need and a market opportunity for companies like AV and others to try to help simplify and integrate and interoperate all these systems together. That's precisely what AV 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 AVHalo and many, many other subsystems or modules of AVHalo. AVHalo 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, an 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 loading munitions, which uses third-party apps as a software that is plug-and-play into our system. And so the last thing I want to mention is that we've developed AV 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 and interoperability at the lower level at the edge of the battlefield than it is just represented at the graphical user interface at the high level. 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 area and innovate and deliver more capability. And that's why our solutions have always been known as software-defined platforms. And I'm glad you asked that question, Louis.

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, Louis.

Thank you. Our next question comes from Jan Engelbrecht with Eric. You may proceed.

Good afternoon, Yves, Given, and Denise. Congrats on a really strong set of results. I guess with the Blue Halo and our foreign 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, frankly, sort of lack of industrial base to do things themselves, to just look at things like sort of the local system 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 now 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 to a more of a domestic opportunity? Sure. Sure.

So, really, the Blue Halo solution set brings tremendous complementary capabilities to AV. And as I mentioned earlier, that in the space domain, obviously, you know, the large $1.5 plus billion program record that we've won with the Space Force is a, you know, incredibly advanced innovation and state-of-the-art capability in the phase deranged. 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 LOCUS system, which I mentioned, is the leading directed energy counter-drone or counter-UIS solution in the market today. We delivered our first batch of systems to the U.S. 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 multi-billion dollar market. We believe that the counter UAS directed energy solution with lasers, which is the Locust platform as an example, is a multi-billion dollar long-term opportunity for the company. And we're the leader in that space clearly. And lastly, I'll mention also the Titan RF solutions. We're 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 I absolutely agree with you that the Blue Halo solution set is incredibly complementary to our solution set. They're growing. We're winning a lot of opportunities and programs. We're positioned for a lot more. And then being a 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 USDOD and other government agencies can buy easily because of the certification. And so that's another great progress for our company and our teams. And we're very pleased with the progress we're making so far.

Great. And it's 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 low-earth orbit sort of the problems that vendors are experiencing on the optical terminals. um is that still i mean would you still consider that a golden dome opportunity given that it's going to have a bit more latency than the satellites in low earth orbit and i guess i 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 comps and phase the race addresses both of those two key areas that you mentioned.

I 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 can be jammed. The same thing is true of all the satellites that we have in the space, whether it's commercial satellites or military satellites, national security satellites. They are susceptible to the same jamming issues because they talk to systems on the ground and they talk to each other. So laser communications, which we're 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, we 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, and many other customers for LEO and NEO satellites as well. And so that's why I said that market is a multi-billion 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 more attention and focus from the USDOD and a lot of commercial companies as well, and customers as well.

Perfect. Thank you. Appreciate you, Tom.

You're welcome.

Thank you. Our next question comes from Jonathan Siegman with Stiefel. You may proceed.

Good afternoon, Waheed, 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. So when I add that in to what you had on April 30th, 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 merged that in? Just got a question that maybe something that dropped out and was hoping you could confirm that is not the case.

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 funded backpacks.

Just to add to that, Jonathan, you know, we have won and booked quite a lot of really significant unfunded contracts that allows 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 put task orders against it. So what we have is a great situation where in this quarter and the next quarter, Q2 and Q3, we expect to book an enormous amount of funded orders and firm 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.

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 two billion in the second quarter. So we see a lot of momentum already in this quarter, which, you know, we have some time left. So we're very optimistic.

Great. We'll look forward to seeing it. Thank you for the time.

You're welcome, Jonathan.

Our next question comes from Greg Conrad with Jeffrey, if you may proceed.

Good afternoon. Maybe just kind of And 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, you know, how much of that is competitive versus follow-on? And, you know, 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 we're pursuing, we're actively engaged in, in the majority of those cases, if not all, we're one of the top contenders for those programs. We're very, very confident that many of those programs over the next several years is going to convert into some sort of a backlog and demand for our 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 USDOD and the funding and the congressional budgets work. But overall, we have a very high win rate when we engage in opportunities. And so we don't expect it to be 100 percent, of course, but there's going to be more competition. But the magnitude of programs and the quality 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 that we've worked really hard to get here. And I think 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 want to kind of hedge their bets on the scalability.

And I guess just as a follow-up, I mean, that part seems to kind of fit what we're hearing about maybe how Golden Dome is awarded. I mean, you called it out a couple times in the script, but how do you think about award timing or decisions, you know, 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 not really counting Golden Dome specifically as part of those 20 programs. Maybe some parts of it, very small parts of it, not much. These 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 U.S. Department of Defense and our national security agencies and the president and the department can actually implement very quickly at almost no R&D costs. 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 hypersonic missiles and, you know, cruise missiles and ICBMs, we've got the 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 in an 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 the last several months to architect that solution set, and 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're obviously getting spooled up on that. And we really wish that 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, you know, 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. 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 still in the cards right now? Should we expect a, you know, kind of a decision now, imminently?

I do, Andre. I mean, we're talking to the program office of the U.S. Army very, very regularly. They're very impressed and happy with our solution set. We believe that our solution meets the U.S. Army's requirements for the LRR program better than any other solution on the market. We also know that they most likely will downselect to two. And as Kevin said earlier, that they would keep at least two vendors sort of warm and engaged in this development. We have ramped up manufacturing. We're ready to go. We've been getting ready because we know that the U.S. Army has an urgent, urgent need. Persistent, low-cost ISR at the edge of the battlefield and different theaters is incredibly important. And we've got one of the most affordable, low-cost solutions out there. And the P-550 delivers on that quite well. So I'm hoping that the announcements will come sooner. You know, we're still within that timeframe that I mentioned, three to six months. We're very close to getting to that three-month period. It's not actually only 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. And I guess sticking on LRR and P-550, you know, 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 P-550 order as early as this past quarter. So I just wanted to see if there was 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 P-550. As I said, the P-550, 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 P-550 with the U.S. Army as part of the LRR program will translate, most likely will translate, into a global 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. Waheed, appreciate the color. I'll step away and leave it open to the rest of the queue. Thanks so much.

Thank you, Andre. Great.

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

Hey, thank you for the question. Can you maybe 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 in terms of total dollars or as a percentage of revenue?

Thank you.

Well, as I said, I mean, I think 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 to that. Now, the only caveat to that is 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 that the USDOD 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. 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. And just, I don't know, like, 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?

No, just, like, how much working capital should go out of the balance sheet? Like, just how much, how much, yeah.

For the year, all said and done, it shouldn't go much higher than it is right now. Okay. Thank you. I appreciate the call.

You're welcome, Colin.

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

Great. Hey, team. Thanks for taking the questions.

I wanted to just follow up on the $240 million award for the laser terminals. I understand it's 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. Is it something similar to that deal or just timing of that potential upside? Just, again, I know you're not specific, but just from a general outlook.

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 the 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 fast. 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 full rate production, which will happen a year later, a little 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 box. 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 call, Wahid.

I really appreciate it. You're welcome, Trevor.

Our next question comes from Austin Mohler 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 launched 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 launch effect is only for the U.S. domestic consumption of the different variants of the launch effects. Because launch effects comes in small, medium, and different sizes and different effects. It's only for the domestic U.S. DOD needs, not for the FMS customers in demand.

Okay. And could you just go into a little bit of detail on the energy requirements for LOCUS on an Ampel or DEM Shorad 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, that's another area I'm glad you brought this up because our directed energy locus laser system tries 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. And 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 you can make it as big as you like. It ain't 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 fall in the ground. And so, that secret sauce is very, very unique to AV'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 kilowatts system, and we have plans to go higher. The MSURADs and other systems are much, much more expensive, much bulkier and bigger, and less mobile and maneuverable. So our system has been installed. As I said on the call, in my remarks, that we've installed it and we delivered it to the U.S. Army on a JLTV, and we're going to deliver more of them. U.S. 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-UIS and counter-hypersonic missile defense system, including the Golden World. 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 Bullitt with Needham. You may proceed.

Hi, thanks for taking my question, and congrats on the solid results, guys. My question has to deal with you guys' four-year guidance. 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 OBB 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 of quarters?

So, Austin, 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 for 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 ahead, 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 OBB dollars is baked into our guidance and our expectations, but some of it's not. And then every day that goes by, by the budgets not being approved or a continuing resolution going forward or the dollars not hitting their accounts, it actually adds more risk for that not to happen this year, but it will happen the following year. Regardless, we're going to have a great year, and we're most likely going to finish the year strong with a very strong pipeline and 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 UAS side, counter-UAS, or just love some color there?

Awesome. 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 AV has never been better. And we're going to have a fantastic year this year, and we're positioned and poised to grow 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 ABA load. It's there for our Titan family of our jammers. There is money for space laser communication and needs for that. And it's also for phased arrays and SCAR and Badger systems that we have. I think the opportunities for us, both domestically and internationally, has never been better. And, you know, we've 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, 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 air 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.

Thank you. This concludes today's conference call. You may now disconnect.