0001104659-26-025979
SEC filingQ3 FY26 revenue surged 143% YoY to $408.0M, driven by BlueHalo acquisition, but $151M goodwill impairment led to net loss.
In the third quarter of fiscal 2026, AeroVironment reported revenue of $408.0 million, a 143% increase compared to $167.6 million in the same quarter last year. The surge was primarily attributable to the acquisition of BlueHalo in May 2025, which contributed $85.1 million in product revenue and $91.4 million in service revenue. Legacy AV product revenue grew $53.0 million driven by demand across all product lines (LMS, MacCready Works, SUAS, MUAS, UGV). Service revenue from legacy AV increased $10.9 million, led by customer-funded R&D.
Gross margin fell sharply from 37.7% to 24.2%, as cost of sales grew 196% versus revenue growth of 143%. The main drivers were $12.7 million in intangible amortization and other purchase accounting costs (versus $3.7 million last year) and a product mix shift toward lower-margin products, particularly Switchblade. SG&A expense rose to $99.4 million (24% of revenue) from $43.8 million (26% of revenue), with the dollar increase driven by $30.1 million of additional intangible amortization from BlueHalo and $7 million in higher employee costs. R&D expense increased to $27.1 million but decreased as a percentage of revenue from 13% to 7%, reflecting the larger revenue base.
Operating loss was $179.0 million versus a loss of $3.1 million in the prior year, primarily due to a $151.3 million goodwill impairment charge in the Space reporting unit. The impairment followed a stop-work order on the BADGER antenna program for Space Force’s SCAR program. Net loss was $156.6 million compared to a net loss of $1.8 million. Interest income improved to $3.7 million (from expense of $0.2 million) due to higher cash balances, while the effective tax rate was negative 11.1% due to the non-deductible goodwill impairment.
AeroVironment reports two segments: Autonomous Systems (AxS) and Space, Cyber and Directed Energy (SCDE). The SCDE segment was created from the BlueHalo acquisition and had no prior-year comparables.
AxS segment revenue reached $278.7 million, up 66% from $167.6 million. Legacy AV products accounted for $53.0 million of the product increase, while BlueHalo contributed $30.0 million. Service revenue in AxS grew $28.1 million, with $17.2 million from BlueHalo and $11.0 million from legacy AV. AxS segment adjusted EBITDA rose 112% to $46.2 million, with margin improving from 13.0% to 16.6%. The increase was driven by higher volumes, partially offset by cost of sales growth and mix headwinds.
SCDE segment contributed $129.3 million in revenue but generated negative adjusted EBITDA of $1.7 million, reflecting early-stage integration costs and investments. The segment operates at lower margins initially.
Management expects R&D spending to remain at 7–8% of revenue. The revenue mix is anticipated to continue shifting toward higher service revenue following the BlueHalo acquisition. Funded backlog stood at $1.12 billion as of January 31, 2026, up from $726.6 million at fiscal year-end, providing good near-term visibility. However, unfunded backlog includes $1.49 billion of unexercised SCAR options that are no longer expected to be awarded, clouding the longer-term pipeline.
The company is conducting an internal investigation into Legacy AV's cybersecurity compliance with Department of Defense requirements. Depending on the outcome, it could affect the ability to win new contracts or lead to penalties. The company also highlighted that cash taxes will be significantly reduced in fiscal 2026 due to the R&D deduction provisions of the One Big Beautiful Bill Act.
Liquidity remains solid with $339 million available under the revolving credit facility and $1.70 billion in net proceeds from July 2025 equity and convertible note offerings, after repaying $965 million in debt. Management believes existing resources are sufficient for the next twelve months.
As of January 31, 2026, AeroVironment held $289.9 million in cash and cash equivalents and $358.9 million in total investments (short-term and long-term), providing substantial liquidity. Total assets surged to $5.45 billion, driven by the BlueHalo acquisition, which added $2.46 billion in goodwill and $925.9 million in intangible assets. Shareholders' equity stood at $4.27 billion, up from $886.5 million at April 30, 2025, reflecting the issuance of common stock for the acquisition and a public offering. The company's total debt, net of issuance costs, was $727.9 million, primarily consisting of $747.5 million in 0% convertible senior notes due 2030. The revolving credit facility had no outstanding balance, with $339.0 million available.
The company disclosed $1.12 billion in remaining performance obligations (funded backlog) as of January 31, 2026, with 39% expected to be recognized in fiscal 2026 and the remainder in fiscal 2027 or beyond. Additionally, AeroVironment has a $2.23 million remaining capital commitment to a limited partnership fund, expected to be funded over the next two fiscal years. Operating lease liabilities totaled $98.1 million in present value, with total lease payments of $124.1 million through fiscal 2030 and beyond.
Capital allocation activities were dominated by the BlueHalo acquisition and subsequent financing. The company issued $747.5 million in 0% convertible notes due 2030 and sold 4.06 million shares of common stock for net proceeds of $966.8 million. These proceeds were used to repay the $700 million term loan and $265 million revolver balance. Capital expenditures for the nine months ended January 31, 2026 were $63.4 million, up from $14.3 million in the prior year period, reflecting investments in property and equipment. No share buybacks or dividends were reported.
The company operates two reportable segments: Autonomous Systems (AxS) and Space, Cyber, and Directed Energy (SCDE). For the three months ended January 31, 2026, AxS generated $278.7 million in revenue and segment adjusted EBITDA of $46.2 million, while SCDE generated $129.3 million in revenue and segment adjusted EBITDA of $(1.7) million, including a $151.3 million goodwill impairment. Revenue by customer category showed $365.8 million from the U.S. government and $42.2 million from non-U.S. government customers. Geographically, domestic revenue was $226.1 million and international revenue was $181.9 million.
Operating cash flow (CFO) of -$173.9M was significantly worse than the prior period's -$1.1M, driven by a net loss of $241.0M (vs. net income of $27.0M) and large working capital outflows. Key non-cash add-backs included $202.96M in depreciation/amortization, $151.3M goodwill impairment, and $28.1M stock-based compensation. However, working capital consumed $341.2M, led by unbilled receivables (-$142.1M), inventories (-$92.7M), and accounts receivable (-$19.9M).
Capital expenditures (capex) rose to $46.1M from $14.3M, reflecting increased investment. Free cash flow (not explicitly stated) would be deeply negative given CFO and capex. No share repurchases or dividends were paid.
Anomalies include the $151.3M goodwill impairment (non-cash), a $335.2M purchase of available-for-sale investments, and $844.6M spent on business acquisitions. Financing activities provided $1.65B, primarily from equity ($968.5M), convertible debt ($726.9M), and revolver proceeds ($233.9M), offset by $700M in term loan repayments. The company ended the period with $289.9M cash, up from $40.9M.