AeroVironment (AVAV) Q4 2026 earnings review
A Record Quarter Lands the Year, But the Quiet Bombshell Is a Restated Loss and a Control Failure
AeroVironment closed FY26 with a blowout fourth quarter: revenue jumped 30% year-over-year (pro forma) to a record $642M, adjusted EBITDA margin snapped back to 22% from single digits, and full-year adjusted EBITDA of $286M beat the high end of guidance. The volume finally showed up, and so did the operating leverage. But two things sit underneath the celebration. First, the company restated its Q3 results just last week, taking an additional $89M goodwill impairment on the cancelled SCAR space program and disclosing a material weakness in its internal controls. Second, FY27 guidance is sober: revenue up only ~10% with adjusted EPS essentially flat at $3.02-$3.34, because a wave of CapEx (jumping from 5% to 12-14% of revenue) drives depreciation higher and management openly assumes the new defense budget won't fund their programs until spring 2027. A new CFO, Sean Woodward, runs the numbers this quarter.
🐂 Bull Case
After three quarters of investors questioning a heavily back-loaded plan, Q4 delivered: 31% organic growth, product gross margin of 44%, and adjusted EBITDA more than doubling year-over-year to $140M. The 'volume fixes margins' thesis was finally proven in the numbers, not just promised.
Just after quarter-end, P550 won a $117M Long Range Reconnaissance award; Titan counter-UAS sales more than doubled for the year; Red Dragon, LOCUST, and the FE-1 missile (a ~$1B opportunity) are all early in their adoption curves. Funded backlog hit a record $1.2B and total bookings reached $2.7B.
🐻 Bear Case
The company restated Q3 last week with an extra $89M impairment and admitted a material weakness in the controls used to calculate goodwill impairment. The error was made by a third-party accounting firm and caught only afterward. For a company that just doubled in size via acquisition, weak controls over acquisition accounting is not a small footnote.
FY27 guidance is ~10% revenue growth, down from 30% organic in Q4, and adjusted EPS is guided flat ($3.02-$3.34 vs $3.31). A CapEx surge to 12-14% of revenue means free cash flow turns negative again, and management is explicitly not counting on the FY27 defense budget arriving on time.
⚖️ Verdict: ⚪
Neutral. The operational quarter was genuinely strong and the demand environment is real, but a restatement with a control failure, flat forward EPS, negative guided free cash flow, and 74% more shares outstanding than a year ago all temper the enthusiasm. The story is improving; the earnings quality and governance are not yet.
Key Themes
Restated Q3, $89M Extra Impairment, and a Material Weakness in Controls
One week before this call, AV restated its third quarter. An additional $89M non-cash goodwill impairment on the terminated SCAR program brought the full-year impairment to $241M, and the restated Q3 net loss widened to roughly $244M from about $157M. New CFO Sean Woodward disclosed a material weakness in internal control over the preparation and review of the goodwill impairment analysis: a third-party accounting firm prepared the Q3 calculation and omitted an allocation of goodwill tied to acquired tax attributes. Management says enhanced controls were implemented in Q4 but must be tested over additional quarters before the SOX deficiency is remediated. This is the single most important new disclosure of the quarter and it sits directly on the BlueHalo acquisition accounting.
Precision Strike Is the Engine: Switchblade, Red Dragon, MAYHEM 10
The Precision Strike & Defensive Systems operating group grew 80% year-over-year (pro forma) in Q4 to $333M and 61% for the full year, driven by the Switchblade loitering-munition family, Red Dragon one-way attack drones, and Titan counter-UAS. The Switchblade 400 won a key Army LASSO award. A new product, MAYHEM 10, was debuted for the Army's Launched Effects program, built on the Switchblade foundation but designed to launch from ground, maritime, air, and unmanned platforms with a 10-lb lethal or non-lethal payload. Red Dragon received a $17M Q4 production award and management expects it to become a meaningful revenue contributor within two to three years. A new Salt Lake City facility with $2B+ annual capacity is on track to begin production in spring 2027.
Directed Energy Reaches an Inflection Point
Management framed LOCUST directed energy as the next category set to repeat the loitering-munition growth story. During Q4, LOCUST shot down incoming drones with a stated 100% success rate aboard the USS George H.W. Bush, the FAA cleared directed-energy systems to operate in domestic airspace for asset protection, and AV announced a $30M expansion of its Albuquerque facility to move LOCUST to full-rate production. The economics are the pitch: under $10 per shot versus millions for traditional interceptors. A first-of-its-kind Army program of record, EHEL (Enduring High Energy Lasers), worth roughly $500M total, is expected to be awarded in the coming months and AV is competing for it. This is early-stage and unproven in revenue, but it is the clearest new growth vector in the SCDE segment after SCAR.
The Volume-Driven Margin Recovery Finally Showed Up
For three straight quarters management guided adjusted gross margin to recover to the mid-30s 'next quarter,' and for three quarters it didn't. Q4 delivered: total adjusted gross margin reached 34%, 730 basis points above the Q2 low, driven by 44% product margin on strong Switchblade and Titan volume. Adjusted SG&A fell to 11% of revenue and R&D to 5%, demonstrating the operating leverage management had promised at scale. The caveat: Q4 adjusted service margin collapsed to 2%, hit by a delayed Cyber Mission Solutions service contract and a one-time forward loss and EAC revision on a legacy BlueHalo contract following an indirect-rate realignment.
Budget Timing: Management Is Not Counting on FY27 Funds Arriving
CEO Wahid Nawabi was unusually direct on the macro picture. AV assumes a continuing resolution, with the full FY27 defense budget unlikely to pass until December or January, meaning appropriated dollars probably won't reach the services until around March 2027. The separate reconciliation bill (potentially hundreds of billions for AV's categories) is also assumed delayed by the election cycle. As a result, the company will 'live off' its current backlog for the first half and guidance deliberately excludes the upside. This is the honest version of the back-loaded-year pattern that has burned the stock before, and it is why FY27 is guided second-half-weighted (55% of revenue, two-thirds of EBITDA in 2H).
Cyber & Mission Solutions Keeps Shrinking
The one persistent weak spot in the BlueHalo portfolio. Cyber & Mission Solutions fell 26% year-over-year in Q4 and 17% for the full year to $345M, hurt by discontinued programs, the government shutdown (much of the work is on-site with customers), and the DOGE-driven pullback in government services early in the year. Management now characterizes this as a slow-growth, stabilized business rather than a growth driver, conceding it is 'not the highest growth area' of the portfolio. It was the original secondary rationale for the BlueHalo deal, so its softness matters to the acquisition thesis.
CFO Transition Lands on Sean Woodward
The CFO seat, which turned over after Kevin McDonnell announced his departure on the Q3 call (the same call that disclosed the SCAR termination and original impairment), is now filled by Sean Woodward, a 16-year AV veteran who worked closely with the CEO for over a decade. He signaled continuity rather than change. The timing is notable: his first quarter as CFO is also the quarter in which the company restated prior results and disclosed a material control weakness, both inherited from the prior regime.
FE-1 Missile: A New Category AV Has Never Played In
Freedom Eagle-1, a low-cost kinetic interceptor for Group 1-3 drones, is moving toward flight testing in roughly 12 months on a $96M Army development contract, with Congress adding funds to accelerate it. Management is targeting a per-unit cost of $100,000-$150,000 versus the millions for conventional missiles, addressing a gap in cheap defeat capability. AV calls itself one of very few new missile producers in 30 years and is expanding its Huntsville, Alabama facility (which it is purchasing for $16.3M) to build it. The opportunity is framed at close to $1B over several years. It is genuinely new, genuinely early, and carries real development risk.
Other KPIs
Above the high end of guidance and up from $3.28 in FY25 — but essentially flat despite adjusted EBITDA nearly doubling (+95% to $286M). The reason is dilution: the BlueHalo all-stock deal and a $968M July equity raise pushed weighted diluted shares to 49.1M from 28.2M, a 74% increase. Investors crediting AV with EBITDA growth should note that almost none of it reached per-share earnings this year. On a GAAP basis the full year was a $5.40 loss per share, driven by $241M of goodwill impairment and $223M of purchase-accounting amortization that will recur for years.
AV's first positive free-cash-flow quarter since Q1 FY25, driven by the strong Q4 operating performance. It is a real improvement, but it follows a full year of negative operating cash flow (-$78M) as working capital scaled with revenue and the Switchblade acceptance-testing process stretched the cash-conversion cycle. Management says it has worked with the government to streamline Switchblade acceptance, which should help going forward. Total cash and investments ended at $713M against $747.5M of zero-coupon convertible debt, a net leverage ratio of 1.2x.
The healthy half of the company. Autonomous Systems generated a 21% adjusted EBITDA margin on $1,358M of revenue, while the acquired Space, Cyber & Directed Energy segment posted negative $3M EBITDA on $619M of revenue. This is the 'two-company' reality: a profitable, fast-growing legacy franchise and an acquired segment that absorbed the SCAR loss and is running at break-even. The bridge to fixing SCDE is the commercialization of LOCUST, laser comms, and BADGER/WASP — all real but multi-year.
Guidance
Decelerating sharply. The $2.175B midpoint implies ~10% growth, down from 30% organic in Q4 and 17% pro forma for FY26, and it excludes any SCAR revenue (SCAR contributed $121M in FY26). The year is guided 45% first half / 55% second half, with Q1 at just 45% of the first half — implying roughly $440M in Q1, which would be down ~3% year-over-year, mainly from the ~$30M SCAR hole and order timing. Management is explicitly not assuming the delayed defense budget or reconciliation funds arrive early, so the guide is built on existing backlog plus conservative timing.
Growing roughly in line with revenue at ~10%, holding the margin near 14.5% at the $315M midpoint — flat versus the FY26 full-year margin. The cadence is even more back-loaded than revenue: one-third of EBITDA in the first half, two-thirds in the second, with Q1 only one-third of the first half. That concentration of profit into the final quarters is the same execution risk that has defined AV's last several years.
Flat to slightly down versus FY26's $3.31, despite EBITDA growth. The culprit is depreciation: the CapEx surge raises depreciation and cloud amortization by ~$37M (+77%) year-over-year, which eats the operating gains. The EPS split is extreme — 25% first half, 75% second half — with Q1 at just 25% of the first half. Investors should expect a soft-looking first half by design.
A major step up from 5% in FY26, roughly $260M-$310M at the revenue midpoint versus about $99M in FY26. The money funds production capacity across Salt Lake City (Switchblade), Huntsville (FE-1), Albuquerque (LOCUST), and Dayton. Management was explicit: FY27 free cash flow will be negative given this spend. This is a deliberate counter-cyclical capacity bet ahead of anticipated demand, but it removes the cash cushion and depends on the demand actually materializing in the next 12-24 months.
Key Questions
Remediation Timeline for the Material Weakness
The goodwill-impairment control weakness was identified only after a third-party firm made the error. Management says new controls 'will need to be tested for additional quarters' to remediate. How many quarters, and given BlueHalo's $1.2B of remaining space-related goodwill, what assurance is there that other acquisition-accounting estimates aren't similarly exposed?
The Path From 14.5% to AV's Historical Margins
Legacy AV ran high-teens adjusted EBITDA margins; FY27 is guided at 14.5%. With Q4 already at 22% on volume, why does the full-year FY27 margin not move up at all? How much is the CapEx-driven depreciation versus genuine mix and cost structure, and when does the SCDE segment turn EBITDA-positive?
Sizing the Budget-Timing Downside
Guidance assumes funds don't reach the services until ~March 2027. If the continuing resolution extends further or the reconciliation bill slips past the midterms, what is the revenue and EBITDA sensitivity to the low end of the range, and how much of the second-half 55% is contractually firm today versus dependent on new awards?
Q4 Service-Margin Collapse
Adjusted service gross margin fell to 2% from the mid-teens, partly from a one-time EAC revision on a legacy BlueHalo contract tied to indirect-rate realignment. Is the rate realignment fully reflected now, or are there other legacy BlueHalo contracts that could take similar forward-loss adjustments as integration continues?