Key Takeaways:
AeroVironment is betting its $2 billion revenue base will tilt further toward lethal drones and counter-drone systems as the Pentagon prioritizes unmanned warfare.
AeroVironment Inc. told investors at the William Blair Growth Stock Conference that demand is expanding across its drone, loitering munition and counter-drone businesses, with the lethal drone segment alone generating roughly $600 million in annual revenue.
"They believe this is a strategic area for our national security as a country, and it's an area that the U.S. needs to accelerate investments in adoption, in development of capability and capacity," Wahid Nawabi, chairman, president and chief executive officer of AeroVironment, said at the conference.
The company, which rebranded as AV after merging with BlueHalo, frames its roughly $2 billion revenue business into four buckets: about $500 million from non-lethal drones including the Puma and Raven platforms, roughly $600 million from lethal systems such as the Switchblade 300 through 600 and the Red Dragon one-way attack drone, a counter-drone segment featuring the Titan radio-frequency jammer and LOCUST laser systems, and a fourth bucket covering directed energy and kinetic interceptors.
The U.S. Army's Enduring High Energy Lasers program, a roughly $500 million opportunity, could accelerate AV's third-generation LOCUST X3 laser system, which Nawabi said can defeat drones at a cost of less than $10 per shot compared with missiles costing millions. AV shares have gained about 18% year-to-date, reflecting investor optimism around the defense drone theme.
Freedom Eagle-1 and Switchblade Capacity Expansion
AV was selected over Raytheon last year for the Freedom Eagle-1 interceptor program, a kinetic counter-drone system designed for Group 1 through 3 threats at ranges greater than 5 kilometers. Chief Financial Officer Sean Woodward said the company is working through development and safety confirmation testing, with a goal of moving into low-rate initial production in about 18 months. The full-rate production price target under the program requirement is about $150,000 per interceptor, compared with missiles costing $1 million to $5 million, Nawabi said. Production is planned for AV's Huntsville, Alabama, facility, where the company has announced an expansion.
Woodward also discussed AV's Salt Lake City facility, which is being built to add about $2 billion of additional revenue capacity. Switchblade 600, the SB 400 solution for the LASSO program and the MAYHEM system are expected to be built there. The U.S. military has provided some funding to accelerate and double Switchblade 600 production, though Nawabi characterized the amounts as not large. AV has already doubled or quadrupled production in recent years based on demand signals and orders, he said.
LOCUST Laser Opportunity Remains Early but Large
Nawabi described the market opportunity for laser-based counter-drone systems as difficult to size because it is still emerging, but potentially "in the billions of dollars long term." AV's current X2 product operates in the 20-kilowatt to 25-kilowatt range, while the Army's EHEL program targets around 30 kilowatts. A 30-kilowatt system can effectively address Group 1, 2 and 3 drones, with typical engagement ranges of 1 kilometer to 5 kilometers depending on the target and environmental conditions.
AV's key differentiation is not the laser itself but the tracking and targeting software that allows a moving vehicle to detect, track and engage drones while operating in a 360-degree environment, Nawabi said. The company also discussed the Jackal, a jet-propelled loitering munition co-developed with Northrop Grumman for the Army's Long Range Precision Munition program, which Nawabi described as a "sprint loitering munition" that reaches a target quickly before slowing down and behaving similarly to a Switchblade.
On international demand, Woodward said AV has decades of experience selling globally through offsets, industrial participation agreements, joint ventures and acquisitions such as Telerob in Germany. The company can pursue local production and contract manufacturing where needed to meet customer requirements, he said.
This article is for informational purposes only and does not constitute investment advice.
