AeroVironment at William Blair Conference: Strategic Defense Expansion

On Tuesday, 03 June 2025, AeroVironment (NASDAQ:AVAV) presented its strategic vision at the 45th Annual William Blair Growth Stock Conference. The company emphasized its robust position in defense technology, underscored by the recent merger with Blue Halo. While AeroVironment highlighted its strong alignment with U.S. Department of Defense priorities, it also acknowledged the competitive landscape in the evolving defense sector.

Key Takeaways

• AeroVironment has merged with Blue Halo, creating a combined entity with approximately $2 billion in revenue and an $8 billion market cap.
• The company is focused on diversifying its portfolio to ensure no single product or program constitutes more than 10% of revenue.
• AeroVironment highlighted its leadership in unmanned systems, counter-UAS, and precision strike technologies.
• The effectiveness of AeroVironment’s Switchblade systems was demonstrated in Ukraine, with significant impact on Russian equipment.
• The company aims to double its size in the coming years, driven by favorable market trends and increasing defense budgets.

Financial Results

• The combined company reports approximately $2 billion in revenue and a market capitalization exceeding $8 billion.
• AeroVironment has consistently achieved double-digit profitable growth over the past decade.
• The acquisition of Blue Halo is expected to positively impact EBITDA and non-GAAP EPS.
• Management is confident in sustaining double-digit growth, projecting a potential doubling of the company size in the near future.

Operational Updates

• AeroVironment is a leader in precision strike, UAS, and counter-UAS technologies.
• The company has deployed over 42,000 platforms and is aligned with six of the 17 protected areas identified by the U.S. DoD.
• Recent product introductions include the Titan four system and the Red Dragon autonomous drone.
• The Jump 20x has secured programs of record in Italy and Denmark.

Future Outlook

• AeroVironment plans to focus on programs generating $300-400 million annually, targeting a $50 billion addressable market.
• The company aims to expand its space technology business and capitalize on border security opportunities.
• Strategic plans include scaling UAS solutions and developing advanced munitions and cyber security capabilities.

Q&A Highlights

• AeroVironment emphasized its in-house radio frequency capabilities and ongoing investment in this area.
• The Badger system, a satellite RF communication project, is anticipated to generate $1-2 billion over the next five years.
• AeroVironment remains flexible in integrating Silvis radios into its platforms as per customer requirements.

In conclusion, AeroVironment’s presentation at the William Blair Conference showcased its strategic priorities and growth ambitions. For a more detailed insight, refer to the full transcript below.

Full transcript - 45th Annual William Blair Growth Stock Conference:

Louis DePalma, Equity Research, William Blair: Afternoon. I am Louis DePalma. I cover aerospace and defense on William Blair’s equity research team. This is day one of the forty fifth annual William Blair Pro Stock Conference. We’re pleased to be hosting a thirty minute presentation slash fireside chat with the management team of AV, and AV is the branding of the new combined company between AeroVironment and Blue Halo.

And so you can see the the halo around AV. Joining us today are chairman, president, and CEO, Wahid Nawabi, and, CFO, Kevin McDonnell, and head of investor relations sitting in the front row, Denise Pasioni. And following the presentation, there will be a breakout right here that will not be webcast. I am required to inform the audience that a complete list of disclosures and potential conflicts of interest are available on our website at williamblair.com. I think Kevin is gonna go through some slides, but before that, if we focus our attention to the first slide here, you can see a picture of what I believe is the Switchblade 300 being launched.

And this is very timely and applicable because over the weekend, there was a a major sneak attack by Ukraine of of Russian forces that was front page news, and it was a major drone attack that was compared to Pearl Harbor. And hopefully, there isn’t a major World War conflict after. But part of the significance of this drone attack was that it featured drones in a box, in that these drones were basically placed in a a cargo pallet, and the drones and the cargo pallet were remotely opened and launched. And so one of the many investor questions related to this drone attack, which could be, you know, presented for, you know, the man himself, Wahid, here is, you know, does AeroVironment have this same drone in a box capability which with its Switchblade as the Switchblade, you know, has been considered the poster child for the US Army and our Department of Defense’s drone program. So we have Wahid here.

And then we will transition to Kevin, and then we’ll go back to Wahid.

Wahid Nawabi, Chairman, President, and CEO, AV: Okay. Thank you. Great to be with you all. Thank you for joining our session. The short answer is yes.

Both Switchblade 300 and Switchblade 600 do come in a multi pack launching system. Switchblade 300, you might have seen it in some trade shows or events. It’s a fully weatherized box about this big for the smaller Switchblade 300 that you can put up to six Switchblade three hundreds inside that box and it closes. It has a remote control, activation mechanism, and, and it was specifically designed for, this type of an op application where you do not have an operator right next to the Switchblade, and you wanted this to be sitting somewhere sitting somewhere outside and eventually being called to action. Switchblade 600, we have a solution that has actually been demonstrated, and it’s in the testing phase and prototyping phase with our customers.

And you have a six Switchblade 600 as well that you can put it on a variety of different platforms. You can put it on a vehicle, a cargo, a rail, a container, even a ship. And we’ve done that even on small boats, very small fast attack boats. And the idea is very similar that you can be remotely launch these things at multiple units at a time to attack either single or multiple targets at a at a time.

Louis DePalma, Equity Research, William Blair: Excellent.

Wahid Nawabi, Chairman, President, and CEO, AV: Thank you. Thank

Louis DePalma, Equity Research, William Blair: you. I don’t

Kevin McDonnell, CFO, AV: know which one’s live. Okay. Thank you, Louis. I’m, Kevin McDonald. I’m the CFO.

I’ll just take you through a few slides. Thank you everybody for coming. Big big crowd here. I know it’s the end of the day, but I think everybody wants to go to the reception. But, first I’ll start with the safe harbor.

We’re not giving any numbers out today. We’re really talking about the combined a v blue halo story. That’s what’s fresh in everybody’s minds. And as Louis is saying, one of the main takeaways, if you, you know, don’t listen the rest of the time, we’re in the middle of a seismic shift in warfare. We’re moving to drones and counter drone technologies and AV has been in this business a long time and we’re at the forefront of those technologies for the US military and our allies.

So that’s just one of the most important points you can take away from today. So today, AV represents what we believe is the premier provider of defense technology solutions. We’ve been the trusted supplier of the US military and our allies for over thirty years. We’re the best position to address the emerging global priorities of unmanned systems, one way attack, counter UAS, directed energy, and space. So today with the combined portfolio of Blue Halo, we address all these areas and I’ll I’ll show you a little bit later specifically how.

We’ve consistently shown double digit profitable growth over the last decade or so. And with the blue and the BlueHalo acquisition which we just talked about did close on May 1 fortifying our leadership position in all these markets. Probably one of the more important facts on the page is the fact we’ve deployed over 42,000 platforms between the AV group one through three systems, our Switchblade systems, and our counter UAS systems. Our systems are battle tested. We’ve made these things in volumes for for decades and invested billions of dollars.

The combined company’s revenue is about $2,000,000,000 and our market cap today is a little over $8,000,000,000. The combined new company is gonna be in two different segments. One segment will be autonomous systems which has our precision strike one way attack capability, our group one through three UAS or unmanned aerial systems, mostly for reconnaissance but other things too, our counter UAS systems, our ground and maritime robotic systems, and a group call we call McCradyWorks, which McCrady is what was our what is founder of the company, as another group which really is our innovation unit. They’re working on advanced solutions. They were the group that actually developed the Red Ragon which we recently introduced which we’ll talk about a little bit more later.

The other group is the space technology group. That’s ground communications and space hardware. A directed energy group which is both for space communications and for counter UAS solutions, a cyber group doing advanced cyber cape operations for the US military, very high end stuff, And then they also have an advanced solutions group which is working with some of our key larger customers on again very advanced high-tech solutions, stuff that really isn’t in the, in the air like, AV has been McCradyWorks is focused on a lot of other solutions for for key customers. So the combined company provides combines two port great portfolios, two growing businesses well positioned. On the AV side, we we we’ve traditionally had the very strong Switchblade franchise and our group one through three UAS business and, again, Blue Halo brings a space business and the, direct and energy capabilities with to us And this just creates a very diversified portfolio just so happens to be very well matched with the USDOD priorities today which have been more specifically enumerated over the last few months than when we actually did this deal back back in November.

So this creates a a very accretive transaction in terms of EBITDA and non GAAP EPS, so improved profitability, over the coming years. And we do believe this is a company that’s well positioned for double digit growth and beyond the next several years. So in terms of the investment highlights, there’s there’s many. Again, the portfolio of products which I’ll go through more in a second is well aligned to the DOD priorities. And if you look at it in these particular categories of, group one through three UAS, Lordy Munitions, One Way Attack, Counter UAS, and Space, we’ve invested over $3,000,000,000 over multiple decades in these products.

This is not an overnight startup situation. This is a battle tested company with the solutions that have been around for decades and we continue to innovate and I’ll talk to you more about that like that. We’re talking about multi generational products. We just, for example, introduced Titan four. So the fourth generation counter UAS RF, detect and identify and defeat system.

Again, global, providers over a hundred countries among the two companies. AV has had a long had a strong franchise globally in UAS solutions, that I would call the 800 pound gorilla in those sections. And we have the proven ability to scale and produce. We’re very well aligned not only with the general priorities but some of the bigger bet priorities of the US DOD. And again, we have a very diversified portfolio.

We’re as we what we’re doing here is not we’re building a multi billion dollar defense technology company that at the end of the day will have multiple solutions serving, multiple customers with no single product or program representing more than 10 or 20% 10% of revenue say. Again, we’re not looking we’re not gonna be a bit even these large aerospace companies have programs that might be 30% of their revenue. We’re our programs are gonna be of the billion, the 2,000,000,000, 3 billion sides over five years and generating 3 and $400,000,000 a year. That’s kind of the profile of what we’re looking at. So everybody has to have a huge addressable market.

So we got that, $50,000,000,000. But if you break it down, it’s even more interesting. The the the three markets on the left, the group one through three UAS, the defensive systems which is really where your counter UAS is, and your one way attack or precision strike or lowering munition categories, that’s $15,000,000,000. We are the absolute leader in every one of those markets. The undisputed global leader in in UAS from group one to three on the battlefield, counter UAS with blue halos or or or Titan four system and and and then on precision strike, laureate munitions.

We invented that category over a decade ago. We’ve been evolving those products over time and, we have the Switchblade 300, six hundred and now the red the Red Dragon. On the right in the space technology area, that that’s a combination of things like, our ground station, our Badger ground station that’s gonna be replacing the entire US DOD infrastructure on the ground while enabling, the ground station to communicate with multiple satellites at a time. But also more importantly, laser laser communications. The number of laser communication terminals is growing at a a CAGR of 45% and expected in and of itself to be a $40,000,000,000 market in five years.

So now they use laser communications at all levels from the GEO to the LEO satellites. We’re focused in on the GEO side which obviously that that market is the the entire market. But we’re focused on a very fast growing part of the g of the GEO market which again will be an important part of something like a a golden dome dome solution. So, several weeks ago now, the US DOD when they were when DOGE was popular and there was a big memo sent around said, cut we want you to cut back. We want you to cut back 8% of your budget, think is the number was.

And they said, yeah. But we don’t want you to touch these 17 categories. And by default, that’s their 17 priorities. Well, when you looked at those priorities, and these are listing of six of them, we we are six of the 17 priorities, most of the product categories. I mean, some of the priorities were, you know, additive manufacturing, scale, investment and and things like that.

So but when you look at the the product and service categories, we’re six of the 17, protected areas that the US DoD is investing in. So we’re leaders, as I said, in things like precision fires and loading munitions. We’re leaders in autonomous UAS systems. We’re leaders in counter UAS systems. We’re leaders in space technology primarily as a supplier to some of the larger prime contractors.

We’re leaders in in advanced cyber security solutions and we have a variety of advanced munitions. So when you look at the revenue diversity, on the left is the a v, kind of f y 25 ish or 24 ish number 25 ish numbers. And we’re pretty much dominated by the group one through three UAS and our precision strike capabilities. Two extremely strong global franchises. Lots of growth there.

Again, fully aligned with the US DOD priorities. But when we combine with Blue Halo and the post acquisition company, much more diversified but also very strong franchises added in counter UAS and space technologies and cyber. These are not names or not, you know, names on a chart. These are substantial businesses that they bring to the table and really diversify our revenue streams going forward. So we create, again, I said earlier, creating a very diversified company.

Current list of active programs of record we’re going after, it’s over 30 and you know, we would say we’re the one or two, number one or two candidate for those programs over the next several years. These programs as you know, they evolve. They don’t just happen overnight. They’re in various stages but we’re in a great position as we look out three years to capture a lot of a lot of that business with the US DOD. Innovation is key to our success.

As I I said before, our founder Paul McCrady was probably not a familiar name to everybody in this room but probably one of the greatest great inventors of our time. He they came to him and said, hey, can you invent a smog detection system for the Southern California? He said, sure, I’ll invent that. Said, hey, can you invent a car charging system? He said, sure.

I’ll invent that. Sure. Can you invent an electric bike? Sure. I’ll invent that.

So they came to him with all the problems that that the world had and he he he basically rose to the challenge with engineers. So we have in our DNA this kind of innovation engine and it so happens he stumbled on, can you make a drone to fly over a hill so we can see the enemy? And he said, sure, can do that. And that’s what started AV down the defense path, down the the the we immediately in the in the early wars, early Middle East wars, were the ones providing the early drones to them, flying over a hill with somebody looking at things. Things are a lot different today and we’ve been along for the ride throughout that innovate innovation.

And as I said, you know, during that during these last deck even just the last decade alone, invested about $3,000,000,000 in this product portfolio in terms of CRAD and IRAD and sustaining engineering. We have substantial innovations in all these product categories and I’ll talk to that a little bit more later. But we also focus on open architectures. We’re not trying to close out the competition. We’re trying to have open architectures following the the US Department of Defense’s MOSSA standards.

Our p five fifty introduced recently this last year is one of the best examples of how MOSSA is probably supposed to work. And we believe in having those standards so we can have adaptability as we move forward. This is a really pretty picture of all of our stuff. I won’t go through the whole thing but it it shows you that we’re going from space to ground to sea with our product portfolios and we’re on the edge. We’re we’re dominant on the edge.

Whether you need something that’s in the battlefield, in the fight, there’s no one that has the complete portfolio that we have on the edge when it comes to drones and counter drones technology, even battlefield communications. We have a strong presence there. And you know, we talk about the platforms and we talk about, you know, drones and and and lethal drones and things like that but we also have a strong software legacy of different solutions from our Kinesis software which provides command and control, multi platform command and control to our battlefield operations software called Vigilant Halo, to our vision systems called Spotter Edge which allows object identification on multiple platforms supplied to many different prime contractors. Our Avacore technology which provides autonomy to again a lot of aerial platforms. So we have a very substantial investment in software.

This is my favorite slide. On one slide, you can see the three primary product categories of Precision Strike, which is your lethal drones, your group one through three UAS drones, and our counter UAS capabilities. On the left, the precision strike, we start with our Switchblade products, the 603 which are the the the they’re the category leaders today. I mean, you know, that’s easy to say but we’ll really give you an example. You know, the Ukraine war was not just about was about getting rid of a lot of our old technology on the battlefield but also trying all the new stuff.

So after a year in Ukraine, The US DOD did not have a an army program for precision for loading munitions or or lethal drones. They came back and said, we’re gonna have a program. We’re gonna have a program of record. We’re gonna pick AeroVironment Switchblade 600 as the first, tranche of this of this, our new Lloyd ammunition program or a precision strike program called LASSO. And we’re gonna have we have a replicator program with our showcase of technologies and we’re gonna start with the Switchblade 600.

So kind of validation that on the battlefield in real world conditions, the Switchblade is performing sub extent substantially well very well and, really proving its mettle. And on the bottom is our Red Dragon, which recently is Red Dragon which is a fully autonomous one way attack drone. And by autonomous, I mean you point it in a direction and it can autonomously find the targets. The final decision to take the target out or not is it’s still in the operator’s hands but with and with a confidence level. In the middle is our group one through three UAS.

We’ve been the 800 pound gorilla in group one two for for for two decades. But this year, we introduced the p five fifty, a revolutionary group two platform multi domain, allows the operators in the field to switch out from reconnaissance to lethal effects in a matter of minutes. For example, it’s all MOSTA compliant. The Puma, is legendary around the world, used heavily in Ukraine still today as as prime as their primary air force. And the jump 20 x, the first fully autonomous group three aircraft to to be able to land and take off on a moving ship in in in relatively high sea state.

The first. And really getting a lot of traction with The US, Navy, the Marine Corps and obviously our our land forces and most recently won, programs of record in Italy and Denmark. And on the far right is the counter UAS solutions. Again, in the middle, the Titan solution, the most fielded counter UAS RF defeat system in the world is the Titan system. Our LOCAUS system is laser weapon system.

The only fully deployed directed energy counter UAS solution. So using lasers to take out drones, in the world that is mobile and and be able to move on the battlefield. There’s some larger ones that are fixed site but but, this is the only mobile one that’s fully deployed. And Freedom Eagle, our our entrant into the, counter UAS missile business. And then the last three and I’ll go quickly because my time’s running out is our space technology business.

There on the upper left is the Badger system which allows a satellite to or, the ground station to communicate with multiple satellites at a time. Today it’s a one to one, ratio between the ground station and the satellite. This enables them to have multiple satellites communicate. Again, something that would be critical in a golden dome scenario is to have more advanced ground stations. The laser comms, the ability to communicate through lasers which are more secure with with satellites in the geo area is another key business that should should grow substantially.

And then we have tons of space qualified hardware which we again sell mostly to prime contractors. And then we have, the ground and maritime robotic solutions. The Defender system is on a program of record about almost a hundred million dollars. And then on the far right, Emerging Technologies is really the McCradyWorks I talked about. So if you look at all those products, and as I said earlier, we’re fully aligned with in in great position to capture pieces of the Golden Dome program, one way attack.

Again, one of the top, I think five or so priorities of the list was a one autonomous one way attack. The counter UAS priorities, we all are seeing how important that is, not only in the battlefield but at the border, critical infrastructure over time. This will be a exponentially growing field. Border security, again, both from our connison standpoint and from a counter UAS standpoint. And then space technologies, again, everybody knows that, you know, there’s, you know, space is an important domain for a future fight.

And one little kind of tidbit of examples, talking about the Switchblade in Ukraine is that we supply using about 36,000,000 of Ukraine of of Switchblade six hundreds, the Ukrainians were able to destroy over $2,500,000,000 of Russian equipment. It’s it’s because of the Switchblade six hundred’s ability to evade the countermeasures of the Russians successfully. So it can lock on visually to a target well beyond the countermeasures of the Russians and those countermeasures of jamming or comms denied are not effective. It’s just gonna lock on visually to the target and take it out and the switchblade is probably second to none in its ability to track a moving a moving target. So to wrap it up here, we have a very aligned to our customer priorities.

That’s the US DOD and and the our allies. We’re right sized to be the disruptor. We’re going after the right types of programs that make a significant impact to our customers. We’re providing leading edge technologies. We’re we’re not we’re not something we developed ten years ago and we’re still selling it.

We’re we’re on the edge. We’re we’re make we are developing category killers as we speak in those areas that we are investing in. We have a proven track record. Nobody can deny that to delivering to the US DOD for thirty years. The recent acquisition even positioned us better for all the DOD priorities including now counter UAS and space and cyber.

And we’ve we pride ourselves on having profitable growth, a strong EBITDA percentage and this, the combination of Blue Halo shouldn’t change that. Again, even as a $2,000,000,000 company, we are we are we are very confident of double digit growth and beyond as we look out the next few years. And now if you layer on top of that all that’s happening with the army transformation, the DOD priorities, what’s happening around the globe with increasing budgets in NATO. We are very well positioned to to have significant growth and, you know, double this company in the next few years. And that’s it for the formal presentation.

Thanks. You made me nervous standing the whole time there. You were ready to take the mic away from me.

Louis DePalma, Equity Research, William Blair: I think of the slides.

Kevin McDonnell, CFO, AV: Okay. So question time.

Louis DePalma, Equity Research, William Blair: Yeah. Another timely drone related development that took place last week for Wahid and also Kevin was that Motorola announced that it is they reached an agreement to acquire Silvis Technologies for $5,000,000,000 and I think this is a company that you guys know very well. And Silvis, for those of you in the audience who don’t know, they specialize in this type of radio frequency networks that allow drones to evade jamming. And so my question for you got you, Wahid, and and Kevin is, do you have your own, like, in house, like, Silvis type capabilities? Because, Kevin, you were just discussing how the Switchblade was particularly effective in Ukraine because it was able to avoid being jammed, and there were reports over the past two years of how Russia was shooting down, like, 90% of the the drones that came from Ukraine’s side, but your drone seemed to be particularly successful at evading these electronic warfare attacks.

So what are your in house capabilities that allow you to avoid your drones being jammed? Sure.

Wahid Nawabi, Chairman, President, and CEO, AV: You want

Kevin McDonnell, CFO, AV: me Yeah. You got it. You got it.

Wahid Nawabi, Chairman, President, and CEO, AV: So I did my work. You’re gonna Believe it or not, actually, that’s a really good example you shared because people don’t know that in the small group one, two, three UAS or drone business, AeroVironment’s RF radios is by far the most pro prolific, highly deployed system out there. Those 42,000 plus systems that Kevin talked about, almost 95% or so plus of them have our radios in it. Because when we started developing our drones a decade plus ago, two decades ago, there was no such company as Silvis or Persistent Systems or others. And so US DOD wanted us to develop a specific waveform for the communication and controls of drones.

Louis DePalma, Equity Research, William Blair: Digital data link.

Wahid Nawabi, Chairman, President, and CEO, AV: Right? Digital data link. And it’s called the DDL, digital data link. It’s actually a waveform. It’s almost think think of it as a five g or LTE waveform standard for RF communication between a ground station and a drone.

And the US DOD made it a standard, and we gave the license or the technology to them as well. And so a vast majority of the drones that are out there, which is ours, has that. And so if you look at based on that and probably if we if we make it a separate product by itself, we don’t break it down because it’s a subsystem that goes into every one of our products. It’ll be one of the most profitable in a large revenue base for the company, probably more profitable than other things. And so the Silvas example is a really good one because it’s the first time now Silvas radio is used for more than just the drones now because but predominant use of theirs is actually walkie talkies between ground soldiers and operators in Ukraine.

And so if that business if we split that up, it should be at least worth that much, if not more, because it’s a lot more prevalent and it’s capable. And we continue to invest in it. At the same time, we’ve actually stayed, as Kevin said, as a open architecture and platform. So we have integrated Silvis radios into our drones when the customer says we should use this versus the other one, including on our Switchblades, including in our other platforms that we’ve used. And we continue to stay open to that, and we’re actually good teammates and players together in the market.

Even though indirectly, we somehow compete in this area as well. So the answer is yes, we do, and we have a lot of expertise in this area. To just fast forward a little bit more, the Badger system that you see, which is a really a next generation phased array system, It is all about RF communication. It’s about RF at much, much, much, much longer distances, and it’s the ability to actually control and communicate to the thousands of The US defense industry defense of the DODs and intelligence satellites that we have. And that that infrastructure is supposedly the second oldest infrastructure in The United States as a whole.

I think the nuclear triad is the only one that actually is older. And this program was competed, and the AeroVironment or AV now Blue Halo at that time essentially has won it, and it should be over a billion, 2 billion dollars over the next five years. And we wanna go as fast as we can, and the customer would like us to go faster because that is desperately needed to be upgraded. And we’re doing

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