AeroVironment achieves $473 million revenue in Q2, driven by $3.5 billion in contract awards and expanding international demand amid strategic growth initiatives.

System jump 20 and jump 20x, which was recently selected as one of four options on the US Navy's basic ordering agreement. This significant achievement allows AV to compete for specific U.S. navy intelligence, surveillance and reconnaissance or ISR task orders over the next five years in a large and rapidly growing UAS maritime defense market. In addition to these domestic achievements, we're also expanding and experiencing an increase in international demand. Within our autonomous systems segment. We were recently awarded an $874 million sole source IDIQ contract from the US army for international sales of our small UAS products to include Raven, Puma AE, and Puma LE. This IDIQ contract vehicle also allows for the sale of our jump 20, medium, UAS and Titan series of counter UAS solutions. Our strategy is driving tangible results, which is evident in the successful product launches this quarter. We recently unveiled several new offerings including our next generation of Switchblade loitering munitions with our Switchblade 600 block II, Switchblade 400 and Switchblade 300 block 20. These products were mostly internally funded and developed quickly, helping to expand the Switchblade product line and create long endurance multi domain anti armor solutions ensuring warfighters maintain tactical overmatch in contested environments. We also debuted our next generation Vapor Compact Long Endurance Helicopter or Vapor CLE. This group 2 VTOL UAV is fully autonomous and can deliver up to two hours of flight, which is double the endurance of typical Group 2 quadrotor UAV platforms. Our newly integrated Nvidia ORIN onboard computer makes the Vapor CLE fully autonomous and enables automatic target recognition through AV Halo Vision Computer Vision software and AV Halo Wizard Artificial Intelligence Machine Learning AI ML Processing suite. On our last earnings call, we discussed the significance of our software solution AV Halo. Since then, we have announced that AV was awarded the US Army's contract for Human Machine Integrated Formation (HMIF) program. This award accelerates fielding of multi domain robotic formations using AV's unified interface of command and control, tactical awareness and autonomy solutions at the tactical edge as part of this win, AV is going to be the lead software and system integrator for robotic systems on the edge of the battlefield. This award also validates the strength of our approach to software solutions, common controllers and user interfaces, and underscores the Army's confidence in AV's ability to deliver mission critical solutions. We also just released two new products from the AV Halo suite including AV Halo Cortex a Next generation intelligence fusion and analysis environment, and AV Halo Mentor: a warfighter readiness suite that leans on virtual and augmented reality weapons training and mission rehearsal. AV Halo will continue to roll out more products and offerings that position AV as the core and leading developer in this space. Furthermore, we recently announced a collaboration with OpenJaus or OpenJaws. OpenJaws is an open architecture for software framework that allows robots, drones, missiles and ground vehicles to speak the same language. This integration extends AV Halo compatibility to seamlessly incorporate robotics, allowing original equipment manufacturers to integrate their platforms faster and more easily. This collaboration strengthens AV's role as a driver and leader of the industry's push towards interoperability. In addition, AV won several key awards in our Space Cyber and Directed Energy segment which includes with critical new contracts and laser communications, space related satellite communications and directed energy. For example, av received a $240 million contract for our long haul laser communication terminals, one of the largest to ever be awarded in this category. This disruptive innovation is moving from lab to orbit, a critical step for AV and the industry. Long haul laser communications use precision optical links to move enormous amounts of data between satellites faster, more securely and without the vulnerabilities of traditional radio frequency or RF signals. This capability is critical because it creates a resilient high bandwidth backbone for future space networks, ensuring warfighters and decision makers get the right information instantly even in contested environments. This win continues to push AV to the center of innovation in space. Additionally, AV secured a new firm fixed price option for two Badger phased array systems under the SCAR or Satellite Communication Augmentation Resource Program. This program represents a tremendous growth opportunity for AV as more Badger systems move into production. Lastly, AV was awarded a contract valued at $499 million by the U.S. air Force Research Laboratory to develop material technology and deploy protective solutions to the front lines to guard war fighters against exposure to harmful electromagnetic radiation. Work under this large program known as Helmsman, will help deter against directed energy strikes in the future. We continue to set the standard in advanced protective technologies in directed energy defense, positioning AV as a clear leader in safeguarding warfighters against emerging threats. Further, our disruptive solutions continue to position AV as a leader in next generation defense. From our family of switchblade loitering munitions to advanced counter UAS solutions, we're redefining the battle space. We have unseated incumbents with our Locust laser weapon system and secured key wins like Freedom Eagle 1 (FE1) delivering cost effective kinetic counter UAS solutions for Group 3 and 4 drones and beyond. With our AI and machine learning driven platforms, we believe AV continues to set the industry standard, positioning us to fully capitalize on the generational opportunities ahead. During the quarter, we continued to form additional strategic alliances and collaborations that will help AV expand domestically and internationally. In September, we signed a Memorandum of Understanding with Taiwan's National Chungshan Institute of Science and Technology or NCSIST, to collaborate on autonomous systems and technology to support Taiwan's defense and security needs. We also signed a Memorandum of Understanding with Korean Air to advance medium and crewed aircraft systems to the Republic of South Korea. Both of these agreements underscore our expanding international presence and steadfast commitment to providing flexible, mission ready solutions for our customers. Both agreements are centered around AV's Jump 20 and Jump 20X systems. These systems provide the kind of operational versatility that continues to grow in popularity in international markets. We also announced a collaboration with grand sky to establish the foundation for a Golden Dome for America Limited Area Defense Architecture (GLADA) at Grand Forks Air Force Base in North Dakota. This collaboration is significant as it marks the first deployment of AV's critical counter UAS solution set to secure a US Air Force base, creating a model that can be replicated across other critical US national security sites. As the demand for our innovative offerings accelerates, we recognize the critical importance of scaling quickly. Since last year, we have been focused on securing a new facility in Salt Lake City to expand our switchblade manufacturing further. Plans are progressing on a 100,000 square foot facility that will allow for multiple switchblade lines and provide additional capacity. This new factory has the potential capacity to produce over $2 billion worth of switchblades or other AV products per year. We anticipate this factory to be operational about a year from now. Beyond expanding our own footprint, we're also actively strengthening our supply chain to support anticipated demand, continuing to stay ahead of the market. As part of our distributed approach to manufacturing for resilience and risk diversification, we now have manufacturing sites operating across 12 different states, reinforcing our ability to scale rapidly and reliably. In addition to scaling operations, we're transforming the defense technology landscape through our acquisition of BlueHalo. We are already realizing meaningful synergies from the BlueHalo acquisition, which Kevin will discuss in further detail. Together we're building next generation platforms that fuse counter uas, space technologies, directed energy, electronic warfare, cyber and integrated software solutions, creating a suite of capabilities unmatched in the industry. This combination accelerates innovation and continues to position AV as the disruptor driving rapid change in a market hungry for speed, agility and advanced solutions. We are reshaping expectations and setting a new standard for what can be delivered to the US and our allied forces. Before turning the call over to Kevin, who will provide more financial details on our second quarter results. Let me conclude with the following comments. Despite a challenging environment, we delivered a strong quarter. Our continued investment in R&D and capacity expansion is translating into strong growth and key program wins and positioning AV for even more growth in the coming years. We recognize there is a generational shift in the U.S. department of Defense's procurement strategy and product needs. Our offerings are designed to meet warfighter requirements and our strategy is fully aligned with these new practices. We're executing on manufacturing expansion and are confident that we can meet increased demand. Integration of BlueHalo is progressing well and this acquisition is helping to establish AV as a next generation defense technology company with unmatched capabilities across multiple domains. With that, I would like to now turn the call over to Kevin McDonnell for a review of our second quarter financials. Kevin thank you Waheed Wahid.

Today I'll be reviewing the highlights of our second quarter performance, during which I will occasionally refer to both our press release and earnings presentation available on our website. I will start by commenting on our results for the quarter and then turn to guidance for the remainder of FY26. While this quarter presented challenges in terms of the US government shutdown and our transition to new operational systems, we are very pleased with the continued business momentum and more importantly, our revenue and adjusted EBITDA outlook for the year remains in the same range despite some of the challenges in Q2. Next, I'd like to draw your attention to Slide 17 of the earnings presentation, which sets forth the definitions for our customer contracting activity going forward. Each quarter we'll present, we'll report the total contract awards, bookings, funded backlog and unfunded backlog in the quarter. Now I'll highlight some of that customer contractivity in the quarter. As Waheed mentioned, we earned awards with totaling the ceiling of $3.5 billion and we achieved $1.4 billion of bookings and ended the quarter with $1.1 billion of funded backlog and $1.8 billion of unfunded backlog. We're very pleased that the U.S. department of War contract activity continued progressing despite the shutdown, and we view this as a testament to the importance of the programs we're involved in. Some of the recent key awards are highlighted on Slide 10 of the earnings presentation. Both segments captured multiple large awards during the quarter. As Waheed mentioned in his remarks, Total revenue totaled $472.5 million in the second quarter, which represented a 151% increase over the prior year as reported or a 9% increase on a pro forma basis. Legacy AV organic growth was 21% in the second quarter. Slides 6 and 7 of the earnings presentation show the second quarter and the year to date revenue by operating group for each of our two segments compared to pro forma FY25 revenue. The AXS segment recognized 302 million in revenue in the quarter which represented a 15.7% increase over the FY25 pro forma revenues. Precision Strike and Counter UAS products led revenue growth for the Segment with nearly 38% increase, nearly a 38% increase compared to the Pro Forma FY25 Second Quarter Results Strong Switchblade 600 and Titan sales led to the growth in this operating group. Uncrewed Systems, including both our small UAS and medium UAS products improved more than 8% from the Pro forma results from the same quarter last year. Uncrewed Systems without Ukraine revenues grew more than 50% year over year driven by strong jump 20 revenue increase. The Space, Cyber and Directed energy segment recognized $171 million of revenue in the quarter which was similar to the pro forma results from the same quarter last year. The Space and Directed Energy products grew more than 20% in the quarter versus the prior year with the Locust Directed Energy Counter UAS growth being one of the key drivers. As Wahid mentioned earlier, this segment also received several large contracts this past quarter to include a significant contract for our long haul Laser Communications and two badgers for the US Space Force's SCAR program. Cyber Mission Systems showed a decline in revenue, largely result of programs that were discontinued and was negatively impacted by the government shutdown. As mentioned earlier, this segment had a strong quarter with new contracts with a nearly $500 million Helmsman award among others. Moving on to gross margins, Slide 13 shows the adjusted product and service gross margin including reconciliations to GAAP gross margin. Second quarter overall adjusted gross margins were 27% versus 41% in the second quarter of FY25. As noted, the business landscape of the combined new company has changed significantly with a higher service mix and several products in the early stages of maturation. The second quarter did present some additional challenges to adjusted gross margin. We went live with our Oracle Fusion ERP system upgrade in the quarter. As a result, we experienced some operational inefficiencies and one time costs related to the go live. With that said, we've made a major leap forward in our operational systems as we transition to the cloud to support a multibillion dollar company. In addition, we saw an unfavorable service product mix and unfavorable product mixed partially as a result of the government shutdown caused by delays in FMS shipments. In addition, we lost revenues in our Space, Cyber and directed energy businesses during the shutdown. However, we believe the adjusted gross margin should improve in Q3 and be in the high 30s by Q4. We are maintaining our full year outlook for adjusted gross margins in the low 30s. Moving on to operating expenses, adjusted SGA, which is net of intangible amortization and deal integration costs with 66.1 million versus 33.2 million in the prior year. The increase is largely a result of a combination with bluehalo As a percentage of revenue, adjusted SGA in the quarter was 14% of revenue versus 17.6% in FY25. Again, these adjusted SGA levels represent a shift in the business model and we expect to end the year in the 12 to 13% range as we begin to realize synergies and achieve higher revenue levels. R and D expense for the second quarter was $36 million or 7.6% of revenue compared to 28.7 million or 15.2% of revenue the prior year. Again, this is a shift in the business model and we expect R and D as a percentage of revenue to end the year between 6 and 7% of revenue, which represents an increase in R and D dollars over the prior year for the combined company. In terms of adjusted EBITDA, slide 14 of our earnings presentation shows a reconciliation of GAAP net income to adjusted EBITDA. Adjusted EBITDA for Q2 was 45 million, up from last year's Q2 of 25.9 million as reported, primarily due to the incremental Bluehalo results. EBITDA as a percentage of revenue was 9.5% in the quarter. Despite some of these one time costs and impacts from the government shutdown, we continue to forecast the full year adjusted EBITDA between 15 and 16% of revenue. Now turning to non GAAP earnings per share. Slide 12 shows the reconciliation of GAAP and adjusted or non GAAP diluted EPS. The company posted adjusted earnings per diluted share of $0.44 for the second quarter of fiscal 2026 versus $0.47 for diluted share for the second quarter of fiscal 2025, slightly lower due to the same reasons as stated previously. Moving to the balance sheet at the close of the second quarter, our total cash and investments amounted to $669 million as reported last quarter. We now have a completely new balance sheet as a result of the Blue Halo transaction and the convertible debt equity financings completed in Q1. Consequently, many of our balances are not comparable to prior periods. For instance, our overtime revenue recognition has increased from 41% to 75% year over year, driving up unbilled receivables. With that said, unbilled receivables continue to be at a higher level than we are targeting. Turning to Backlog as noted earlier, our funded backlog at the end of the second quarter was $1.1 billion and unfunded backlog was 2.8 billion. Our visibility to the midpoint of the revenue guidance range is now 93%. I should note that this is consistent with past practice that we include within our visibility revenue from long term contracts we expect to perform during the fiscal year, but which have not been funded as of this date. Finally, I'd like to provide you with our updated FY26 guidance on slide 8 of the presentation we provide. Fiscal 2026 guidance Fiscal year revenue is expected being between 1.95 billion and and 2 billion. Adjusted EBITDA remains between 300 million and 320 million and non GAAP adjusted EPS is now projected to be between $3.40 and $3.55. The midpoint of our revenue guidance range represents nearly a 15% growth over the pro forma FY25 results. The lower non GAAP EPS range is a result of a higher full year projected tax rate, largely driven by the Q2 update of the purchase price allocation of the Bluehalo acquisition. With the government shutdown impacting both our fiscal Q2 and Q3, we have seen delays in some of the orders and therefore a shifting of projected revenues to the right second half revenues should be split approximately 45% in Q3 and 55% in Q4. The adjusted EBITDA shift will will be more pronounced with 70% of the second half EBITDA coming in the fourth quarter. I'd like to close by echoing Waheed Wahid's remarks. We are very well aligned with the U.S. Department of Defense priorities and those of our allies and we are excited about our prospects. Despite some of the challenges in Q2, we are confident of meeting our guidance for the year. Now I'd like to turn things back to Waheed.

Thanks Kevin. Before turning the call over for questions, I'd like to reiterate some of the positive Momentum entering the third quarter of fiscal year 2026 first record second quarter awards with a total contract value of $3.5 billion, bolstered bookings to reach an all time high of nearly $1.4 billion driven by key program wins that support AV's long term growth. Second, we also achieved another record second quarter revenue of nearly $473 million. Third, we launched several new innovative products aligned to our customers highest priorities and continue to execute on expanding our manufacturing capacity to meet accelerated demand. And fourth, with 93% visibility to the midpoint of our guidance range, we are raising the lower end of our fiscal year 2026 revenue guidance and now expect revenues between $1.95 billion and $2 billion. Our strong second quarter results reinforce our confidence in AV's future and our role in shaping the next era of defense. With integrated capabilities across multiple domains of modern warfare, advanced technologies and the ability to scale rapidly, we believe we are well positioned to meet the Department of War's highest priorities and sustain significant growth in a demand driven market. The Department of War has reiterated sharpened focus on speed, scale and commercially driven procurement strategies, all of which plays directly to AV's strengths. This has been our strategy from the very beginning, investing in innovative solutions ahead of demand, scaling rapidly and driving innovation to deliver decisive advantages for our customers. Our alignment with these priorities, combined with our successful track record in best in class production capacity, creates a powerful competitive advantage and positions AV as a trusted partner ready to deliver at the pace the mission demands. 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 so much. And as a reminder to ask a question, you will need to press star *1 on your telephone. Please stand by while we compile the Q and 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 Greg Conrad with Jeffries. Please proceed.

Good afternoon.

Hi Greg. Maybe just one on programs. I think you announced that you got two more Badger units in the quarter. Can you just remind us how you're thinking about the current schedule of SCAR and maybe how that contributes to the.

Expected ramp for that program? Sure.

So Greg, as I mentioned on my remarks, we did secure an additional task order and award from the US Space Force for additional Badgers. Two more additional Badgers. The whole SCAR program, as we mentioned on our comments before, has been so far in a customer funded development process. We're shifting now from development activity to delivering products most of which is going to end up eventually going into a firm fixed price contracts. That transition not only ramps up the revenue for the second half of the year, but also improves the margin profile of the profile of that business. So we're very much on track with our plans. We're pleased with the performance so far and we expect the margins as well as the revenue of that business to actually improve in the third and fourth quarter of this year and continue to improve beyond this fiscal year.

And then maybe just one follow up to that. I mean, I think you talked about a couple of the headwinds that you saw in the quarter around profitability, including Oracle and the shutdown. If you kind of think about that ramp of profitability and margin, given the 70% in Q4, how are you thinking about that progression? How much is operating leverage versus maybe Mix and just the biggest drivers as you see as you head into the second half?

Well, I think Mix is going to be a big part of that. As Wahid just mentioned about the Badger program and going into fixed price product revenues. Some of our other programs at Locus and things like this being product revenues and a ramp up in delivering across the other business units, increasing the proportion of product revenues versus service revenues. We don't see the service revenues growing significantly in the second half, whereas the product revenues are going to drive most of that growth. So that's going to give us better mix and that's why we're going to be able to achieve the high 30s adjusted gross margins by the fourth quarter. And Greg, let's also keep in mind that we have secured nearly $3.5 billion worth of almost all sole source IDIQ contracts. That allows us now to receive task orders underneath those contracts once the funding from the budget approval and the budgets for the Department of War comes through as a result of the shutdown that has been delayed, those product revenues are going to and task orders are going to be received in the next one or two months. That's what we expect. And we want to convert those to revenue so the volume goes up, the mix improves and also the profile of the profitability of some of these products and businesses are going to improve. And that's precisely what we expected at the beginning of the fiscal year.

Appreciate it. Thanks, Greg.

Thank you. Our next question is from Ronald Epstein with Bank of America. Please proceed.

Hi, this is Samantha Styro on for Ron today.

Okay. Hi there.

Hi. I was wondering if you could in the past you've given a breakout of by product in the portfolio. I was wondering if you had any color there or if you could talk a little bit about the relative growth levels by product?

Well, I mean we try to give as much granularity. We've improved our granularityity this quarter by giving you further breakout of the different major product groupings for each segment. And so I tried to give some color behind that that shows what products are driving the different growth in those different product categories. So they're kind of combinations of products, obviously, but we're trying to provide more colors for you. Was there something specific you were wondering about?

Just if you could talk about Switchblade growth? I think you mentioned Ukraine.

If there's any color you could provide there. Yeah, I mean, year over year, Switchblade by far as the fastest growing product in the CEO's precision strike category. Overall, we saw significant growth. Multiple x for the jump 20 in Q2 versus the prior year.

Great. Thank you.

You're welcome.

Thank you. Our next question comes from Anthony Valentini with Goldman Sachs. Please proceed.

Hey guys, thanks for the question.

It seems pretty obvious you guys have massive growth opportunities here across the five to 10 different products that you guys have been highlighting. But maybe to put a finer point on it, is there a way to think through the catalyst path over the next few months as some of the reconciliation funding starts to hit backlogs? What should people be looking for. Anthony? Yes, of course. Be glad to provide some more color there. We certainly have a significant amount of opportunity for growth in value creation here in the next. Not only just a couple of quarters, but next few years we're positioned really, really well. If you look at the key catalysts for growth. Loitering, munition. Of course we continue to grow that category. The Switchblade and one way attack drones that are in that bucket. Our RF Counter UAS Solutions, the Titan family of products is another contributor of significant growth year over year. Our medium UAS product line, which is jump 20 and jump 20x is another category of strong growth and contributor to our growth in general as well as profitability. Our P550, we expect significant orders for that in this third and fourth quarter of this year. The US army is intending to purchase a lot. There's a lot of dollars in the budget for that and we expect to have a fairly large share of that spend with the U.S. army. And we're also lining up a bunch of international customers for that product line. The Scar and Badger program and product is also transitioning to production and we're going to deliver more seal numbers and we're going to ramp up Revenue. The profile of that revenue is higher margin as well as the volume is higher. That helps. So in a nutshell, if you look at across our portfolio, we've got growth across almost every one of our key product lines. Some of them are contributing to some smaller extent versus larger ones, but they're all growing quite rapidly. One area that may not grow as much is our cybersecurity business. And that's primarily because of it's a customer funded engineering services and software solution business that really doesn't ramp up aggressively in terms of growth. But overall we're very pleased with the performance. We're looking for multiple quarters and years of growth. We're positioned really well with the shift in the US DoD and the administration strategies. The kind of business model and products and go to market strategy that we have is precisely what the US Department of War is looking for. And we're positioned incredibly well. There's going to be a lot of money spent. It is really hard to predict exactly how much. There's a lot of demand coming our way and we're getting ready for it as we speak.

Yeah, we think we're on the precipice of significant growth across all those categories. But as with anything in defense, it's difficult to predict the exact timing of that. But we definitely think we're very close to some breakthroughs on some of these products Waheed mentioned. Okay, great, that's helpful. I appreciate all that. Color. One other quick one. I guess I'm just curious, how do we square that with. If I'm looking at the backlog in one Q versus Q, it's slightly down. So can you guys help me understand why that's the case and should we see the backlog significantly ramping into the back half of the year or is it just so unpredictable? It's more that you guys have a feel over the next 12 to 18 months versus the next six.

Well, I think it's pretty flat from Q1 in terms of the funded backlog. The undead funded backlog grew significantly. But remember we were in the CR and the shutdown. So while we got many of these contracts through, which was great, a lot of them didn't come with significant funding. And we expect that to be coming as they get back and are funding back to business on funding new contracts within the Department of War. So it's a little bit of an issue with the shutdown happening and delaying some of the actual funding on these contracts.

Okay, and Kevin, do you have a number for like what you guys expect? Switchblade to be in 2026. I know that you guys gave the color what the production capacity will be out of the Utah facility in the future, but is there a way for us to think about the 2026 forecast?

I don't think we're not really giving specific guidance of the different products, but I think we talked about before.

Roughly 500 million of capacity before we increased to the new facility. So you can go plus or minus that probably. Okay, great.

Thank you guys so much for the questions. Thank you, Anthony. Thank you. Our next question comes from Louis D. Palma with William Blair. Please proceed.

Excellent. Waheed, Kevin and Denise, good afternoon.

Good afternoon, Louis. Good afternoon.

Waheed, what was the tone from the Reagan Defense Forum over the weekend? And are you increasingly confident given all of the presentations of AeroVironment's positioning across your different product lines, whether it's your drones, your attack drones, the electronic warfare in space? Thanks.

Louis. I personally attended the Reagan National Defense Forum this past weekend. The overall sentiment is that we are the role model company that the U.S. department of War and the current administration wants to see a lot more of. We're setting the pace for everyone else. The procurement strategies are shifting to companies that develop things on their own dime. They're doing it ahead of product program requirements. They're doing it at agile and warp speeds. Then we're transitioning it to production quickly. They're focused. We're focused on all the right areas. What the U.S. department of War needs and has major capability gaps. These are critical areas of gap capability gap and it's required for the future defense of us and our allies. We believe we're positioned incredibly well and I think we're going to see continued demand to come our way because of the fact that we can also produce at scale today. We're one of the very, very few companies in these categories that actually has the capacity today and continue to expand it even further to deliver reliable, battle proven products to our customers at scale. That is a huge competitive advantage that we have compared to everyone else in the market. And we're setting the pace for everybody. So I think the sentiment is very positive and strong for av.

On this call, you've discussed many of your product lines such as the P550. Your badger with the SCAR program, your jump 20s. I was wondering, did your long haul laser communications program from the undisclosed customer, was that contract recently up so size from 240 million to 385 million? It shows a larger number in your slide presentation. And I was also wondering, have you started delivering terminals as part of that program.

So Louis, I can only speak to that program at a very high level due to the sensitivity of that program and customer. We are incredibly delighted and pleased with the success that we're having in long haul laser communication terminal. Essentially. We all know from the conflicts of Ukraine that RF communication is very susceptible to jamming. Every satellite that the US has in space essentially is susceptible to that jamming problem. If we cannot control and talk to our satellites, especially in the geosynchronous satellites, we've got a major problem. Those assets are not useful. And we are one of the only companies that we know of that has been awarded a contract of this magnitude, up to $240 million to actually provide the laser communication terminals to overhaul and upgrade the US geosynchronous satellite constellation for national security. That is a massive, massive step forward for a company in our nation. And we beat many of the major prime contractors in that competition. And so there is certainly a lot more upside on that contract because we're just beginning to deliver systems. We haven't delivered much yet. We continue to work with the customer. Our system is performing really well and it takes a while for that to happen as part of the program. So we're very excited and there are options for them to increase that significantly.

Yeah, the 381 includes the options. We put forth our new definitions here to make sure we're all on the same page. That 240 was the original committed contract and the 380 was taking the options.

Great. And so as part of the original. Committed contract, does that mean that is it funded already?

No. So Louis, vast majority of that contract is not funded yet. As Kevin said earlier, one of the reasons why our funded backlog is nearly the same as last quarter and it did not grow as much is because there's two things that has happened. One, the government shutdown put employees of the government not coming to the office and being able to actually put contracts and award things won. But the bigger problem was that because of the continuing resolution in the budget that just passed with the big beautiful bill, those dollars have not made it into the accounts of our customers to be able to then award task orders against those IDIQs. So we expect a significant number of additional funded task orders in Q3 and Q4, all of which is going to improve our backlog and will allow us to deliver more products and more revenue in third and fourth quarter this year. Additionally will set us up really well for fiscal year 27. We're not ready to provide Any guidance for that yet? But that is going to be benefiting from the demand that's coming our way in terms of task orders and more funding.

Sounds great. Thanks, everyone.

Thank you, Louis. Thank you, Louis.

Thank you. Our next question comes from Ken Herbert with RBC Capital Markets. Please proceed.

Hey guys, this is Steve Strachousson for Ken Herbert. Could you maybe discuss the margin profile. Of the Space, Cyber, and Directed Energy segment? And is there maybe a time when you think that the adjusted EBRO will be breakeven?

Oh, yes, it'll continue to grow throughout the year. I mean, they were probably the most impacted by the government shutdown of any of our businesses. And they also had some delays in some of their receipts for their revenue recognition on their system. So they'll definitely be on track as we move forward throughout the year. And Peter, also, we strongly believe in that business. It is a very profitable, reliable, consistent business and business model. Both of those two businesses in the long run are going to be profitable like they were in the past. They're going to be just these lumps of fluctuations that happen. But the businesses models are sound. They're very reliable in that regard. And we expect them to actually improve in Q3 and Q4.

Yeah. And their product mix is going to increase over their service mix. So that is going to drive their EBITDA margins up.

And I'm assuming the next piece of my question kind of goes hand in hand, but can you talk about the. Free cash for maybe the second half.

Of the year or do you have kind of a full year outlook for it as well? Well, we've always tried to say that we can get our EBITDA cash conversion over 50% as the goal for the year. And I still believe that's achievable.

Go ahead. Thanks much, Professor. Thank you, Pete.

Our next question, one moment please. Comes from Andre Madrid with btig. Please proceed.

Hey everyone, thanks for taking my question.

Hey Andre, how are you?

Good, thank you. I wanted to dive a little bit deeper into the almost 900 mil army contract idiq that you guys got. I think the initial award had said. That it was pretty much exclusively small UAs. And then you guys announced earlier this week that it also included CUAs, namely the Titan. Can you tell us more about what the international opportunity looks like for these cuas platforms? I think this is about one of the first times we've really heard about it. Also, can Locust be sold internationally? And then I guess also broadly, just. How should we think about the margin distinction between domestic and international CUAs? Sales.

So, Andre, yes, the nearly $900 million sole source IDIQ contract, multi year, of course, from the U.S. army for our products. Now includes Raven, Puma, E Puma, Eli. But we could also sell our Titan Counter UAS solutions as well as potentially in the future, future, the Locust Directed Energy solutions. This is a significant milestone because the US army could have purchased these things under the existing contracts that we have. But they chose to actually add an additional contract with an additional $900 million nearly ceiling for it to allow us to deliver more products over the next couple, three to four years to our international customers. So that's very positive news. Secondly, the margins for international sales historically and in the future will continue to be slightly more favorable than the domestic markets. Those customers do not buy as much as US dod and generally the margins are a little bit better. If we sell fms, the margins are not a lot better. The best margins are international DCS sales. But FMS has less expenses too, because we do not have the responsibility for exporting it. The US Military does. So we deliver the product to the US Military and they deliver that to the customer, the international customer. The market opportunity internationally is massive for us, really. We're at the beginning phases of that for our Counter UAS for directed energy, for our Switchblade, for our One way attack, and for our Scar Badger systems that we have in our product portfolio. We're just scratching the surface on those items and some of them are literally just starting with no international sales. The area we're really strong is our small uas, but we've got tremendous potential here. I expect the international market over the next several years to grow significantly and be a major contributor.

Got it, got it. That's super helpful. And then maybe just to pivot to Switchblade. I think you said that by next year you could support capacity of 2 billion sales. I think previously the number that you had disclosed was about a billion. I just wanted to see what might. Be driving that difference.

Sure. So Andre, as we keep building these new factories, we're also improving a lot in terms of automation and ability for us to produce and ramp up production. So we're, as you know, we're ramping up production for Switchblade significantly already. We've already tripled, doubled and tripled every year for the last couple years. And we're going to continue to improve it even further. The new facility that we have now in Salt Lake City, which is going to come online later next calendar year, towards the end of next calendar year, has the potential to go above $2 billion worth of production with multiple shifts. If we get to that level, it's going to be well over a $2 billion factory. And I expect that to even go higher than that because there's so much more potential room for growth in terms of our automation and efficiencies in the production processes. Last thing I want to mention about that is that factory is also very flexible. We can produce any variants of Switchblade, but we could also produce other products such as our One Way Attack product solutions and our non lethal UAS and other platforms that we have such as freedom, ego one, etc. Etc. So we're setting the factory to be flexible and agile for lots of our products and we can shift production on that factory as we go forward.

Got it. Appreciate the color as always. Thanks Waheed. Thank you, Andre.

Thank you. Our next question comes from the line of Treble Walsh with Citizens. Please proceed.

Great. Hey team, thanks for taking the questions. Maybe just touching on AV Halo a little bit. Great to see the new products or the new, I guess, modules being added onto that. Can you maybe just take a step back though around that whole product opportunity? Just given all of the different systems from both AV as well as the other providers in the ecosystem that you're partnering and OEM with, and they're able to kind of link in.

How much of that still just needs to work its way through the system in terms of getting those systems out into the field so that the customer can actually just know what's the right sort of overall software package to go with those? I guess it's another way of asking kind of if you have these wins around AV Halo now, but is there really a kind of much wider opportunity that's kind of going to, I guess, materialize later again, once the actual hardware piece a little bit more locked down, I guess. Does that make sense? Yes, of course, Trevor. So let me provide you some color on that. First of all, I'm really excited about the AV Halo suite of software solutions. It's not just one particular product. Think of it as a very robust and broad portfolio of solution sets, a software stack, and an ecosystem that provides lots and lots of different capabilities with different modules such as AV Halo, Halo Command, AV Halo Cortex, AV Halo, Pinpoint, et cetera, et cetera. So we launched two new modules, number one, and we're going to continue to launch more new modules to that. And the best way to think about it in a very simplistic way is like the Microsoft Office Office suite of products, Excel, Word, Outlook, all these different modules are underneath the Office suite, right? The same thing applies to AV Halo. AV Halo has several modules in terms of deployment. We already have thousands, if not tens of thousands of some of the modules already deployed in the field. That is the beauty of our system, that it's all interoperable and integrated. And so what we've done is try to actually bring the ecosystem cohesively together and mesh it all together into one umbrella of software solution. Secondly, it is also at a very open architecture. We can integrate with any other platform, including competitor platforms. And we can also talk to any other systems and other battle management systems. And so our belief is that our solution set is incredibly not well understood yet. And we have a long way to go in terms of the opportunity set here over the next several years. One example of that success story is in my comments about the US army who selected us for the Human Machine Integrated Formation HMIF program record. That is a very strategic and critical program. We competed with very large companies and small companies that are trying to copy our model and we won and US army selected us. That means that the future battle space on the edge of the battlefield, the systems and the controllers that they're going to use to operate these robotic systems, whether on the ground or air, on land or sea, is going to be ours. And we are open, interoperable and we will integrate with many other systems that are there. And so we got a lot more coming in this area and I can't be more excited about it in the future. We already support multiple platforms with our AV command. We support not only our own platforms, we support more competitive platforms today than our own actually. And that's the testament that how open we are with our architecture and our platform for our customers. And that's one advantage that we have that most other systems are not that open.

Great, thanks so much both for the color. Appreciate it. You're welcome, Trevor.

Thank you so much. Our next question comes from Jonathan Sigman with Stifel. Please proceed.

Good evening. Thank you for taking my question. Appreciate it.

Thank you. Jonathan.

Managing the shutdown, I thought that was great. And it's a really interesting time with signals flashing green here with a lot. Of intent of where we want to. Spend money, but with a shutdown causing a real wrinkle. Historically your January quarter hasn't been the strongest bookings quarter for you guys. I'm just wondering if there's going to be some additional frictions this year. You anticipate that. We just can't catch up with all this pent up demand and funded order. Is that a worry for you guys?

Thank you. Yeah, Jonathan, that's a very well put comment because the reason why we do not want to or we hesitated to raise the guidance even more is because there's still some timing risk on when we are going to get some of these task orders. You know, the government came out of the shutdown, but still the budget for the fiscal year is not fully approved. We have funding until January, end of January. And while we expect some task orders to come in, exactly when they're going to come in is anybody's guess. And so therefore we expect, we are confident that we're going to achieve our guidance that we've just provided and anything above and beyond that, we're going to update you as we go in the next quarter. Lastly, we did very well. We are on track with our plans on first quarter and second quarter and we are exactly where we wanted to be despite the fact that the whole industry was dealing with a month of complete government shutdown. And so I think our results are very good and we're very pleased with our results and we're looking forward to the second half of the year. We've got aggressive goals, but we're very confident that we can achieve that. We've got the capacity, we've got the team and we've got the demand from the customer and the support from our customers to get it done.

That's great. And thank you for the new details on the product lines. Appreciate it. Thank you, Jonathan.

Thank you so much. Our next question comes from Austin Moeller with canaccore Genuity. Please proceed.

Hi, good afternoon, Waheed and Kevin. Just my first question here. Can you discuss how much of the. Backlog today is related to Ukraine and. When that might convert and similarly how. Much of the backlog is from European allies ex Ukraine? Well, Austin, we do not break down the specific backlog by customer regions or by specific products. What I can tell you is the following. We have derisked and pivoted from our two years ago Ukraine demand almost entirely. It represents less than 5% of our revenue for the full year, number one. Number two, so far we're on track with our plans and international demand is still back and loaded a little bit because of the government shutdown and the contracting process. Some of those FMS sales have not made it yet to actual contracts to us. Do we continue to get contracts? Yes. But there's a lot more to come towards the second half as well as the next fiscal year. Overall, our backlog is pretty strong.

$1.1 billion worth of funded backlog. You know, we had a $1.4 billion with the funded bookings and I mean very strong orders and backlog and visibility numbers given where we are with the quarter. Yeah. We've been saying consistently that Ukraine should be less than 10% of our revenue for the year and there would be no additional orders in our guidance for Ukraine for this year. So if we did see some additional business from Ukraine, that would be positive for us. But we're not counting on any additional. New orders for Ukraine on our forecast. In our forecast.

Okay. And just to follow up, I know. The genesis of Red Dragon was to. Enable international sales by having an open payload bay that was payload agnostic and didn't have ammunition in it. But do you expect that Red Dragon could replace or take additional share from. The Switchblade 600 over time with the. US military in a long range anti. Armor anti high fixed installation role?

Austin? No. The short answer for that question is no, we do not expect that to take share away from Switchblade primarily because they're designed for very different mission sets. The missions that loading munitions such as Switchblade 300, 600 and now 400 do are very different than the missions of one way attack drones such as our Red Dragon. And our family of Grid Dragon is expanding. We believe both of those two product lines are going to grow significantly over the next few years. The demand for those systems are very robust from more than one service and more than one customer and country. And so I think we're going to continue to see significant growth on both categories. They're actually complementary to each other in many ways as to how they engage with different targets and different missions for customers. Yeah. And our current volumes, we're only going to see growth in all those products. Red Dragon could potentially grow faster, but that doesn't necessarily mean it's taking away share from the other Switchblade products.

Okay, that's very interesting. Thank you for the details. You're welcome, Austin.

Thank you so much. Our next question comes from the line of Pete Skibitzky with Alembic Global. Please proceed.

Hey, good afternoon guys. I just wonder if you could level set us. I'm still a little confused with where we're at with the army long range reconnaissance. I know that you guys, you guys as well as Edge both got contracts in August and then you announced another award yesterday. Are you guys sole source now on. Lrr with a P550 or is there going to be kind of an ongoing competition over the next few years.

More the latter, Pete. So what the army has done, and this is consistent with many Programs within the U.S. army and even other branches of the U.S. department of War services, is that the traditional construct and concept of a program of record single winner probably is not going to be that popular and that common. What they're going to do is they're going to pick at least two players and from those two players they want to field some systems and see who performs better. As the performance of that system is better, that vendor or that supplier most likely is going to get the lion's share of the volume of that program or requirement or capability gap. We believe our solution set is the best performing. We have very strong feedback from the customer that the customer is extremely satisfied with our systems. Yes, we announced a couple of orders and awards, but we expect more. We're actually expanding and ramping up production in anticipation of more P550 orders from the US army as well as additional international customers. We believe that the P550 product is a billion dollar plus franchise for the company over the next several years. We are such a strong believer in that product. I am personally very, very high on that product. Now, in terms of going forward, forward, is it going to be just us? Most likely not. Do we expect to get a very large share of that spend? Yes, we expect to get a large share of it and that's probably going to be consistent across multiple programs, not just the lrr. Got it.

Okay. You know, very helpful, I appreciate that. And just on the P550 specifically, are you cleared to export that internationally already? And if so, you know, how many countries can you export it to and.

How do you expect that to grow? Yes, Pete, that's a great question. And that product line was developed from the ground up, number one, to be MOSA or modular open systems approach, interoperable, incompatible and compliant. A2IT is developed primarily all with our own R and D dollars. So it's a non itar product and it's base configuration, there are modules within it that can make it itar. But we believe that we can sell the P550 to almost every customer that we sell our Pumas and Ravens and other products today. So the market for P550 internationally is equally as large, if not larger than our domestic market. And I believe that we're going to have several customers internationally that's going to come online and place orders for that capability later this fiscal year and even before beyond this fiscal year.

Okay, great. Thanks for the caller.

You're welcome, Pete.

Thank you so much. Our next question comes from Colleen Canfield with Kantor. Please proceed.

Thank you for the question. Maybe just bringing it all home to cash and profitability. If we can kind of think about the building blocks of EBITDA. I think the 4Q guidance on adjusted. EBITDA assumes roughly St. Paul park is kind of combined whole company pro forma. Results as last year. So maybe just kind of walk us. Through how you think of the progression on SG and A and essentially kind. Of how we think about that EBITDA. Step up versus the supply chain kind of dynamics that you're focusing on and then bridging that over. I think Street's probably close to free. Cash flow breakeven this year. So is it fair to assume that kind of the timing and the shift that you talk about requires investment? Or is it fair to assume that this kind of quick book and turn or excuse me, shipping kind of pick a book and ship business can allow you to hit something like that in. Terms of free cash flow? Thanks.

So Colin, let me just add some color to this. We do expect Q4 to be the largest quarter as we provided some color. Almost 55% of our second half revenues are in the fourth quarter, number one. So the overall volume in fourth quarter is higher, number one. Number two, the mix keeps getting more favorable in the fourth quarter from Q1 to Q2 to Q3 and Q4. So that's also a positive trend that's affecting Q4. We expect SG and A and R and D spending not to be a lot higher and not to be a lot lower. We're going to continue to maintain those levels. But the mix shift in the volume is going to help make the profitability much more pronounced in the fourth quarter in that regard. Now in terms of the overall outlook, we provided the full year numbers on profitability and we're confident that we're going to be able to achieve that.

Yeah, I gave color in my script on SGA and R and D and margins for the year. So that's really how you get there. It really comes from improved gross margins and some leverage on things like SG and A, partly because we get realize some of the synergies that we've established in the first half but don't really realize the second half of the year. And in terms of capacity, those numbers really represent where we're at in terms of capacity, where we are increasing incrementally in many places in the second half or even today. And those are reflected in the numbers.

Got It. And just to clarify, is it fair.

To assume that your free cash flow break even this year? Well, we're looking for 50%, it depends how you define all that. But we're looking at 50% cash conversion to our EBITDA for the year. For the year. Which is a significant improvement over last year. Yeah, which is a big improvement. So basically that's ebitda, less our CapEx, less our working capital change from EBITDA.

One moment for our next question, please.

It comes from Peter Arment with Baird. Please proceed.

Yeah, good afternoon, Waheed and Kevin. Hi, Peter. Hi, Peter.

Waheed, maybe we'll just touch upon the. Cash comment that you guys just talked about it. Your precision strike kind of product. Revenues are up 68% for the first six months of this year. But Unbilled continues to grow. And I thought we were under a new contractor payments schedule. Could you maybe give us a little. More color what's going on there?

Yeah, I mean, as we've talked in many quarters, there's been a whole transition period there. There's been some changes in our contracting office, our contracting office personnel that have all been positive. And you know, at this point we feel like we have a clear Runway to continue to start bringing that down the second half of this year. And plus we have this. We do. As we mentioned in the script, we are. The amount of unbilled business is significant, particularly with the service businesses. And the revenue over time portion of our overall revenue is also increasing primarily because of the blue halo. And so that also is playing a factor in this equation. Peter. And just one other comment to make on this topic is that we're really more focused on the top line growth and making sure that we capture the opportunities and not lose momentum on the significant upside that we have in our long term plan. So we're really optimizing to make sure that we deliver for our customers. We deliver capabilities, develop the products. We're anticipating a lot more task orders in the second half of the year. And so we have to really start building products in advance. We can't wait until the last moment. And while we're taking not all the risks, but we are taking some calculated risk to position ourselves to deliver for our customers because we know that they need these systems very desperately. Okay, so just to be clear, you expect Unbilled to be probably materially lower as we get through the fourth quarter, just given your comments about cash conversion on eb.com right. It's pretty simple. We have the 300 to 320 million of EBITDA range CapEx should be roughly a little bit less than half of that. So in order to hit 50% cash conversion EBITDA, the change in working capital has to be minimal. And that's what we're forecasting.

Got it. I'll jump back to you. Thanks guys. Thank you, Pete.

Thank you so much. And as a reminder, if you do have a question, press star *1 to get in the queue.

The question comes from Austin Bolig with Needham. Please proceed. Hey guys, thanks for taking the question and congrats on the nice order full through even with the government shutdown. But my question has to do with kind of the full year guide and with this anticipated funding coming from the obb, is it fair to assume that anything that flows through that that you're expecting is not yet done baked into your current full year guidance? No, Austin, we are expecting and we're expecting multiple task orders and orders on the second half. That we believe we're going to be able to convert that to revenue in order for us to over perform is going to be more difficult because of the timing, how long it takes to go build those products, get them tested and accepted by the customer and then delivered to our customers.

Customers. So we're confident about our full year guidance number one. Number two, we do expect contract awards and task orders in the second half that will convert to revenue and that that's part of our forecast and we're confident that we can achieve that. Gotcha. Gotcha. And then just kind of some specifics on kind of like where, where are you hoping that these new contracts come from within your product portfolio? Is this Precision Strike uas? Counter uas?

So Austin, it's a very nice, nice portfolio or basket of contracts and awards that we expect. It's basically the critical areas that the US DoD needs them desperately and we've been talking about. So P550, more switchblade, more one way attack, more counter UAs, more directed energy, more scar and badgers. And those are the key areas that we expect more of in our second half of the year. There is obviously orders for cyber and other businesses too, but those five or six categories make up the lion's share of the expected additional contract awards and task orders for the second half. All right, well, thank you guys for taking my question. You're welcome, Austin.

Thank you so much. Our next question comes from the line of Clark Jeffries with Piper Sandler. Please proceed.

Hello. Thank you for taking the question. I wanted to ask Waheed, how do the recent changes to Missile Technology control and the treatment of UAS affect the current Aero environment portfolio and maybe even how your posture might change for the future product portfolio. Did any of those changes have any direct impact on the 870 million iDiq? Sounds like maybe there was some counter UAS focus to that contract, but curious there and then any other key policy changes you'd flag as crucial for growing the international business? Thank you.

Sure. So we expect first of all the comment about the change in policy. Absolutely. We believe that the new policy and definition that the US Department of War and government came up with, how they categorize drones and how they categorize loading munitions and one way attack is very favorable to us because they're trying to lax the definitions as to how it's treated versus a true missile that goes very long long distances and it's categorized as a missile. So an armed drone or an FPV even is not categorized the same that is going to help us significantly over the next two to three years. It's not really immediate, but it is over next two, three years. Secondly, yes, the sole source, nearly $900 million IDIQ is directly related to that because the US DoD and Department of War expects us to ship a lot of products because of the demand that they see from different allies. Obviously the U.S. department of War is in contact with those international customers and they see the uptick in the demand for our solutions. So we do expect that to happen, but most of that is not going to happen overnight. It's still a process that takes some time and we work it. Overall, we feel very positive about the general demand for our solutions from international markets, including direct energy counter UAS one way attack loading munition P550 jump 20.

Thank you very much, Denise. You're welcome, Denise. Thank you. And this concludes the Q and A session. I will turn it back to Denise for final comments.

Thank you once again for joining today's conference call and for your interest in AeroVironment. 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.

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