AeroVironment Says Directed-Energy Lasers Could Rival Its Munitions Business Within Five Years After Landmark $465 Million Pentagon Deal
Q1 FY2027 earnings call, September 9, 2026
AeroVironment used its fiscal first-quarter call to lay out what CEO Wahid Nawabi repeatedly called an "inflection point" for its directed-energy laser business, following a $465 million contract with the U.S. Army for its LOCUST counter-drone laser system, the first production award for directed-energy weapons in U.S. military history. The company also disclosed its first international direct commercial sale of a laser weapon system, and Nawabi told analysts he expects LOCUST could become a larger franchise than AeroVironment's loitering-munitions business, which itself has grown past $500 million in five years. "I can see in the next five years that business could be bigger than our loitering munition business," he said, calling the current moment "the beginning of that adoption, just at the beginning."
Locust Economics and the Case for Scale
The strategic logic Nawabi laid out centers on cost asymmetry. AeroVironment's LOCUST system, which uses a 15 to 30 kilowatt laser described as the market's "sweet spot," can defeat drones for under $10 per shot, compared with $1 million to $5 million interceptor missiles currently used against $100,000 to $150,000 Shahed-type drones. "It's just not sustainable against countries like China and Russia in the long run," Nawabi said, arguing that the arithmetic of drone warfare forces militaries toward directed energy. Beyond the Army's E-HEL production contract, management flagged a pipeline of engagements with the Air Force, Navy, Marine Corps, SOCOM and international allies in the Middle East, Eastern Europe and Asia-Pacific, along with early conversations tied to Department of Homeland Security border operations, where the company said its systems have already been credited with shooting down 300 cartel drones. AeroVironment also disclosed that its LOCUST system has received FAA clearance to operate in national airspace, a regulatory milestone the company frames as opening the door to broader domestic deployment and eventual non-defense critical-infrastructure use cases. Production capacity is being scaled at a new Albuquerque, New Mexico facility that AeroVironment described as poised to become "one of the world's largest and highest volume full rate manufacturing" sites for laser weapons. Management was careful to temper near-term expectations on supply chain readiness, noting that "the supply chain and the suppliers that provide systems, subsystems for this is quite young."
Titan and the Golden Dome Contract
Alongside LOCUST, AeroVironment's Titan radio-frequency jamming and detection system won a sole-source $500 million IDIQ contract in support of Joint Interagency Task Force 401's Domestic Shield program, which included an initial $80 million award tied to the U.S. Golden Dome missile-defense initiative. Combined with the E-HEL win, the two contracts underpin what Nawabi described as a layered counter-UAS strategy moving from RF jamming (Titan) to lasers (LOCUST) to kinetic intercept as a last resort. On the kinetic side, the Freedom Eagle-1 program, developed under the Army's Long Range Kinetic Intercept effort, received accelerated congressional funding, and the company expects to deliver 60 to 80 systems over the next 12 to 18 months before transitioning to full-rate production that management estimates could become a $1 billion long-term franchise.
Guidance Reaffirmed, Not Raised, Despite Strong Quarter
Revenue came in at $480 million for the quarter, funded backlog hit a record $1.5 billion (up 37% year over year), and bookings totaled $683 million, producing a book-to-bill ratio of 1.4 times. Adjusted EBITDA reached $53 million, or 11% of revenue, and non-GAAP EPS of $0.59 rose 84% from a year earlier. Yet management reaffirmed rather than raised its fiscal 2027 guidance of $2.125 billion to $2.225 billion in revenue and $305 million to $325 million in adjusted EBITDA, prompting a direct question from Stifel's Jonathan Siegmann about why results didn't warrant an upgrade. CFO Sean Woodward and Nawabi pointed to uncertainty over the timing of congressional approval of the fiscal 2027 defense budget as the primary reason for caution, though they characterized this as a timing risk rather than a demand risk, and confirmed a continuing resolution scenario is already baked into guidance, with a full budget expected around December.
Margin Pressure in Space, Cyber and Directed Energy
Segment-level results showed the Space, Cyber and Directed Energy division posting negative $9 million in adjusted EBITDA, a function of lower revenue following the March termination of the SCAR contract, which had contributed $32 million in the year-ago quarter, and softness in the Cyber & Mission Solutions unit, where revenue fell 16% year over year. Adjusted service gross margin dropped to 8% from 13%, which Woodward attributed to roughly $5 million in lost revenue from discontinued programs making it harder to absorb fixed costs. Nawabi was candid that cyber is not central to the growth story: "We don't expect that to be at the same pace of growth as the rest of the businesses. It's just not the same kind of a market." Management expects LOCUST's margin profile to improve meaningfully in the back half of the year as firm-fixed-price contracts replace early-stage development work, eventually converging with the rest of the segment.
International Footprint Expanding Beyond Munitions
AeroVironment detailed a growing international industrial footprint, including a recently announced joint venture in Greece, an established presence in the U.K. and Germany, a smaller joint venture in Turkey, and teaming agreements in Taiwan. Nawabi said Greece's parliament is processing budget approval for a significant loitering-munition and Switchblade procurement, and that roughly 20 allied countries have now been cleared for foreign military sales or direct commercial sales of AeroVironment products. He suggested that international demand for Switchblade will increasingly outweigh domestic orders in coming quarters, even as U.S. demand remains dominant for now. On LOCUST specifically, management said allies had been waiting for U.S. Army validation before committing, a dynamic now unlocked by the E-HEL award and FAA clearance, though Nawabi cautioned that Greece's current missile-defense contract does not yet include LOCUST.
Capital Deployment and Cash Flow
The company is directing capital toward capacity expansion across Huntsville, Alabama (Freedom Eagle-1), a new $100 million Southern California innovation campus, Albuquerque (LOCUST) and a Salt Lake City facility for loitering munitions slated to open in spring 2027. Free cash flow was negative $36 million in the quarter, and management continues to guide to negative free cash flow for the full year given capital expenditures projected at 12% to 14% of revenue, though Woodward said capital intensity should normalize in fiscal 2028. Total cash stood at $607 million against $747.5 million in zero-coupon convertible debt, with net leverage of 1.6 times adjusted EBITDA. Management also addressed a recent Pentagon memo pushing for greater cost transparency and margin caps across the defense industrial base, arguing it is aimed at large prime contractors with opaque cost structures rather than AeroVironment, whose commercial-style development model Nawabi said the company has run "for multiple decades."