Executive Summary

AVAV delivered record Q2 revenue of $188.5M (+4% YoY) but lower profitability: gross margin 39% (vs 42% LY), operating income $7.0M (vs $25.2M LY), diluted EPS $0.27 (vs $0.66 LY), and non-GAAP EPS $0.47 (vs $0.97 LY) as mix shifted toward LMS and OpEx rose for growth and M&A costs .
Loitering Munition Systems (LMS) was the standout: $77.7M revenue (+157% YoY) aided by favorable contract definitizations (~$10M revenue and GM uplift), offset by UxS decline (-35% YoY) as Ukraine demand normalized .
Backlog strengthened: funded backlog rose to $467.1M (+25% QoQ) and unfunded backlog to ~$1.83B, underpinning management’s reaffirmed FY25 outlook for revenue $790–$820M, adjusted EBITDA $143–$153M, and non-GAAP EPS $3.18–$3.49 (excluding BlueHalo) .
Estimate comparisons: S&P Global consensus data was unavailable at time of analysis due to access limits; we therefore do not include “vs estimates” variances for Q2 (see Estimates Context) [GetEstimates error].

What Went Well and What Went Wrong

What Went Well
- LMS momentum and mix: LMS revenue hit a Q2 record (~$77.7M; +157% YoY) as Switchblade demand broadened (U.S. IDIQs and new FMS customers), and Q2 included ~$10M of favorable definitizations benefiting revenue and gross margin .
- Backlog and visibility: Funded backlog climbed to $467.1M (+25% QoQ); management cited 95% visibility to the midpoint of FY25 revenue guidance and reaffirmed revenue, adjusted EBITDA, and non-GAAP EPS guidance .
- Strategic expansion: Announced agreement to acquire BlueHalo (EV ~$4.1B) to create a diversified next-gen defense tech platform; management emphasized combined strengths in autonomy/AI, space, CUAS, EW, and cyber .
- Quote: “Second quarter revenue rose to $188 million, representing a new second quarter record… we reaffirm revenue, adjusted EBITDA and non-GAAP EPS guidance for fiscal year 2025” — CEO Wahid Nawabi .
What Went Wrong
- UxS normalization: UxS revenue fell 35–36% YoY (Ukraine surge lapping), pressuring consolidated gross margin and profitability despite LMS strength .
- Margin compression and higher OpEx: GAAP gross margin declined to 39% (from 42%) on mix and higher amortization; operating income dropped to $7.0M as SG&A rose by $9.8M (incl. ~$2.5M acquisition costs) and R&D rose by $6.7M .
- Earnings down: Net income fell to $7.5M and diluted EPS to $0.27; non-GAAP EPS declined to $0.47 and adjusted EBITDA to $25.9M, reflecting lower UxS contribution and investment ramp .
- Analyst concerns: IDIQ protest risk (though progress authorized), cadence risk from continuing resolutions and administration change; management reaffirmed FY25 but flagged timing sensitivities .

Financial Results

Metric	Q2 FY2024 (Oct 28, 2023)	Q1 FY2025 (Jul 27, 2024)	Q2 FY2025 (Oct 26, 2024)
Revenue ($M)	$180.8	$189.5	$188.5
Gross Margin ($M)	$75.4	$81.5	$73.6
Gross Margin (%)	42%	43%	39%
Operating Income ($M)	$25.2	$23.1	$7.0
Net Income ($M)	$17.8	$21.2	$7.5
Diluted EPS ($)	$0.66	$0.75	$0.27
Adjusted EBITDA ($M)	$39.5	$37.2	$25.9
Non-GAAP EPS ($)	$0.97	$0.89	$0.47

Segment revenue ($M)

Segment	Q2 FY2024	Q1 FY2025	Q2 FY2025
Uncrewed Systems (UxS)	$132.8	$120.0	$85.4
Loitering Munition Systems (LMS)	$30.2	$52.0	$77.7
MacCready Works (MW)	$17.8	$17.5	$25.3
Total	$180.8	$189.5	$188.5

KPIs and mix

KPI	Q4 FY2024 (Apr 30, 2024)	Q1 FY2025 (Jul 27, 2024)	Q2 FY2025 (Oct 26, 2024)
Funded Backlog ($M)	$400.2	$372.9	$467.1
Unfunded Backlog ($B)	—	—	$1.829
Product Sales ($M)	—	$159.5	$151.2
Contract Services ($M)	—	$30.0	$37.2

Notes: Q2 FY2025 GAAP product margin 42% and service margin 25% (mix-driven); management expects adjusted GM 38–40% in 2H and 40–41% for FY25 .

“Vs estimates” (S&P Global): S&P consensus could not be retrieved at time of analysis (access limit); thus no estimate variances are presented for Q2 (see Estimates Context) [GetEstimates error].

Guidance Changes

Metric	Period	Previous Guidance (Q1 FY2025, Sep 4)	Current Guidance (Q2 FY2025, Dec 4)	Change
Revenue	FY2025	$790M – $820M	$790M – $820M	Maintained
Adjusted EBITDA	FY2025	$143M – $153M	$143M – $153M	Maintained
Non-GAAP EPS (diluted)	FY2025	$3.18 – $3.49	$3.18 – $3.49	Maintained
R&D as % of Revenue	FY2025	12%–13% (qualitative)	12%–13% (qualitative)	Maintained
Adjusted Gross Margin	2H FY2025 / FY2025	—	38%–40% (2H); 40%–41% (FY) (qualitative)	New cadence detail
Quarterly Cadence	2H FY2025	—	Q3 adj. EBITDA slightly down vs Q2; Q4 significantly higher	New cadence detail

Management continues to exclude BlueHalo impacts and acquisition-related expenses from non-GAAP outlook .

Earnings Call Themes & Trends

Topic	Previous Mentions (Q4 FY2024 and Q1 FY2025)	Current Period (Q2 FY2025)	Trend
LMS/Switchblade demand	FY2024: LMS led growth; capacity expanded . Q1 FY2025: LMS +68% YoY; new $990M Army IDIQ initial $128M funded .	LMS $77.7M (+157% YoY); favorable definitizations (~$10M); multiple IDIQs; new FMS (Lithuania, Romania, Sweden); Taiwan & Greece indicated intent .	Strengthening; broadening internationally.
UxS trajectory	FY2024: UxS down YoY in Q4; broader growth in FY . Q1 FY2025: UxS +22% YoY .	UxS $85.4M (-35% YoY) as Ukraine surge fades; pipeline for JUMP 20 >$0.5B; P550 launched (LRR competition) .	Volatile quarterly; medium-term positive with new platforms.
Production/working capital	FY2024: capacity expansion noted . Q1 FY2025: visibility building .	Progress payments in new LMS contracts expected to reduce unbilled and improve working capital from Q3 onward .	Improving terms; expected WC benefit.
Guidance/tone	FY2024 exit: FY25 growth guided 10–14% . Q1 FY2025: FY25 guidance reiterated .	FY25 revenue/EBITDA/non-GAAP EPS reaffirmed; 95% revenue visibility; cadence: softer Q3, strong Q4 .	Confident, execution-focused, acknowledges timing risks.
BlueHalo M&A	—	—	Agreement announced; combined ~$1.7B pro forma revenue; closing targeted 1H CY2025, subject to approvals .
Regulatory/legal	—	—	GAO protest on $990M IDIQ noted; ability to proceed granted; awaiting decision (mid–late Dec) .
R&D execution	—	Q1 investments increased .	R&D 15% of revenue in Q2; projects include P550, JUMP 20 meritization, Tomahawk controller integration, Switchblade variants .
Macro/policy	—	—	CR environment and administration change introduce order timing risk; still reaffirmed FY guide .

Management Commentary

Strategic priorities: “We believe our combined portfolio [with BlueHalo] will provide... industry-leading positions in… UAS, counter UAS, loitering munitions, EW and cyber, all enabled by the best-in-class autonomy and AI software suite” — CEO Wahid Nawabi .
LMS leadership: “Our Switchblade products… have become the global standard for loitering munitions... demand for both Switchblade 300 and 600 continues to grow” .
Capacity and visibility: “95% visibility to the midpoint of our guidance range… reaffirm revenue, adjusted EBITDA and non-GAAP EPS guidance for fiscal year 2025” .
UxS outlook: “The UXS segment... will continue to be one of the strongest revenue and profitability drivers... P550… positioned for the U.S. Army’s Long-Range Reconnaissance program (~$1B over next decade)” .
Working capital: “New [LMS] progress payment terms… expected to start favorably impacting our unbilled receivables beginning in the third quarter” — CFO Kevin McDonnell .

Q&A Highlights

UxS softness and P550: Management framed UxS declines as lapping Ukraine, with strong long-term demand and P550 a key catalyst tied to the LRR program (~$1B opportunity) .
Replicator, Taiwan shipments, IDIQ protest: Switchblade 600 shipments underway for Replicator; protest decision pending, but Army authorized performance to proceed in interim .
Kinesis/Tomahawk integration: Common control (Kinesis) integration roadmap continues; prioritization reflects customer training and fielding needs; broader third-party integrations planned .
International LMS pipeline: Initial orders from Lithuania, Romania, Sweden; Taiwan and Greece indicated intentions; manufacturing run-rate targeted at ~$500M by fiscal year-end with an additional site planned .
Guidance risks: Reaffirmed FY guide with 95% visibility; risks cited include CR environment, administration change, and acceptance timing; Q3 ~40% of 2H revenue; strong Q4 expected .

Estimates Context

S&P Global (Capital IQ) consensus estimates for Q2 FY2025 (revenue, EPS, EBITDA) were unavailable at the time of analysis due to access limits (Daily Request Limit exceeded). As a result, we do not present “vs consensus” variances for Q2 in this recap [GetEstimates error].
Management reaffirmed FY25 targets and provided intra-year cadence and margin color (2H adjusted GM 38–40%; FY adjusted GM 40–41%; Q3 adjusted EBITDA slightly below Q2; Q4 significantly higher) that can serve as reference points for near-term estimate revisions .

Key Takeaways for Investors

LMS is the engine: LMS strength (+157% YoY) and multi-year IDIQs/FMS underpin backlog and visibility; watch for GAO protest resolution and additional international wins as catalysts .
Mix pressures margins near term: Higher LMS mix and amortization reduced GAAP GM to 39%; CFO guides 2H adjusted GM 38–40% and FY 40–41%; investors should expect margins to improve in Q4 on volume and mix .
Cadence matters: Company telegraphed softer Q3 vs Q2 and a strong Q4; trading setups may hinge on order timing (CR effects) and quarter-end acceptances .
UxS normalization but solid pipeline: UxS declines reflect Ukraine comp; pipeline (JUMP 20 >$0.5B, P550 in LRR) supports medium-term growth as new platforms ramp .
Working capital relief: Progress payment terms on LMS expected to lower unbilled balances beginning Q3, aiding cash conversion .
Strategic M&A: BlueHalo acquisition targets scale and diversification in high-priority domains; closing targeted 1H CY2025, subject to approvals—regulatory progress and integration plans are medium-term thesis variables .
Backlog supports FY25: Funded backlog rose to $467.1M (+25% QoQ) and unfunded backlog to ~$1.83B; this underpins reiterated FY25 revenue/EBITDA/non-GAAP EPS guidance .

AeroVironment Inc (AVAV)·Q2 2025 Earnings Summary