Aerospace and defense company AeroVironment (NASDAQ:AVAV) reported Q3 CY2025 results exceeding the market’s revenue expectations, with sales up 151% year on year to $472.5 million. On the other hand, the company’s full-year revenue guidance of $1.98 billion at the midpoint came in 1.1% below analysts’ estimates. Its non-GAAP profit of $0.44 per share was 44.2% below analysts’ consensus estimates.
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AeroVironment (AVAV) Q3 CY2025 Highlights:
- Revenue: $472.5 million vs analyst estimates of $470.1 million (151% year-on-year growth, 0.5% beat)
- Adjusted EPS: $0.44 vs analyst expectations of $0.79 (44.2% miss)
- Adjusted EBITDA: $44.96 million vs analyst estimates of $69.12 million (9.5% margin, 35% miss)
- The company lifted its revenue guidance for the full year to $1.98 billion at the midpoint from $1.95 billion, a 1.3% increase
- Management lowered its full-year Adjusted EPS guidance to $3.47 at the midpoint, a 4.8% decrease
- EBITDA guidance for the full year is $310 million at the midpoint, below analyst estimates of $312.8 million
- Operating Margin: -6.4%, down from 3.7% in the same quarter last year
- Market Capitalization: $13.99 billion
StockStory’s Take
AeroVironment’s third quarter was marked by robust revenue growth, but the market responded negatively due to margin pressures and profitability shortfalls. Management highlighted a surge in demand for its autonomous systems, especially the Switchblade and JUMP 20 product lines, and cited a record $3.5 billion in new contract awards. CEO Wahid Nawabi described the quarter as one of “record second quarter bookings,” but acknowledged operational inefficiencies tied to the rollout of a new ERP system and disruptions from the U.S. government shutdown, both of which impacted service mix and gross margins.
Looking ahead, AeroVironment’s updated guidance reflects optimism about sustained demand across its diversified defense portfolio, but also caution about timing and profit mix. Management underscored the potential for margin improvement in the second half of the year as product revenue grows relative to services. CFO Kevin McDonnell cautioned that “timing risk on when we are going to get some of these task orders” remains, given ongoing government funding uncertainties, and stated, “anything above and beyond [current guidance], we’re going to update you as we go.”
Key Insights from Management’s Remarks
Management attributed the quarter’s strong revenue growth to new product introductions, expansion in core autonomous and counter-drone systems, and several large defense contract wins, while acknowledging margin pressure from operational transition and external disruptions.
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Record contract awards: Management secured $3.5 billion in new contract awards during the quarter, with $1.4 billion in bookings, attributed to wins across autonomous systems and space-related programs. This influx is expected to drive future revenue visibility but is subject to government funding timelines.
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Product launches and upgrades: Several new products debuted, including upgraded Switchblade loitering munitions and the VAPOR CLE autonomous helicopter, targeting both endurance and AI-enabled autonomy. These internally funded innovations are designed to meet shifting defense procurement priorities.
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ERP system transition: The rollout of a new Oracle Fusion ERP system created operational inefficiencies and one-time costs, which management noted contributed to the quarter’s margin pressures but are expected to subside in upcoming periods.
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Shift in revenue mix: There was a pronounced shift toward product-driven growth, especially in precision strike and counter-unmanned aerial systems (UAS), offsetting weaker service revenue. Management expects product revenue to further outpace service revenue, aiding margin recovery.
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BlueHalo acquisition integration: The acquisition of BlueHalo is delivering early synergies, particularly in space, cyber, and directed energy segments, positioning AeroVironment for broader multi-domain defense opportunities, though integration costs affected expenses this quarter.
Drivers of Future Performance
Management expects the pace of new government funding, a favorable mix shift toward products, and expanded manufacturing capacity to shape AeroVironment's results for the remainder of the year.
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Government funding timing: The timing of U.S. government funding releases remains uncertain, directly affecting the conversion of awarded contracts into revenue. Management cited delays from the recent government shutdown and continuing resolutions as key sources of risk for the next two quarters.
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Product mix and margin improvement: AeroVironment anticipates margin recovery as product revenues—especially from Switchblade, P550, and counter-UAS lines—grow relative to services. Management projects adjusted gross margins to improve from Q3 levels as these higher-margin products shift into full-rate production.
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Manufacturing expansion and automation: The company is on track to open a new Salt Lake City facility capable of producing over $2 billion in annual product value. This expansion, combined with automation investments, is expected to support higher output and operational leverage as demand increases.
Catalysts in Upcoming Quarters
In the coming quarters, the StockStory team will watch (1) the pace at which government funding is converted into revenue for awarded contracts, (2) evidence of margin recovery as product mix shifts toward higher-margin autonomous systems, and (3) progress in scaling manufacturing, particularly with the new Salt Lake City facility. The realization of BlueHalo acquisition synergies and international contract momentum will also be important indicators.
AeroVironment currently trades at $270.55, down from $282 just before the earnings. In the wake of this quarter, is it a buy or sell? Find out in our full research report (it’s free for active Edge members).
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