AEVEX Q1 2026 Earnings Call Transcript

Quartr
Provided by Quartr
May 20, 2026

Key Takeaways

  • Positive Sentiment: Q1 results were very strong, with revenue up 307% year over year to $216.7 million and net income improving to $21 million from a $27.3 million loss a year ago. Adjusted EBITDA margins also expanded sharply, driven by higher volume, better mix, and operating leverage.
  • Positive Sentiment: Demand and backlog remain robust, with management saying over 90% of FY2026 revenue is already covered in funded backlog and trailing 12-month book-to-bill was 1.16. The company expects book-to-bill to stay above 1 for the full year and to enter 2027 with solid backlog coverage.
  • Positive Sentiment: Production ramp and operational efficiency are improving, including Tactical Systems unit volumes up roughly 440% year over year and on-time delivery trends improving through the quarter. Management also said manufacturing capacity exceeds 1,000 units per month and supply chain risk appears low for 2026.
  • Neutral Sentiment: 2026 guidance calls for continued growth, with revenue expected to be $600 million to $620 million and adjusted EBITDA of $88 million to $94.5 million. Management noted the second half of 2026 will likely have less revenue than the first half because of accelerated material receipts and program timing.
  • Positive Sentiment: The company highlighted a large pipeline and new awards, including more than $8 billion of opportunities across Launched Effects, One Way Attack, Long Range Precision Strike, and combatant command work. Recent awards such as the $18.5 million Air Force contract and $15.6 million Long Range Precision Strike award support the transition from Ukraine-related work toward broader, diversified growth.
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Earnings Conference Call
AEVEX Q1 2026
00:00 / 00:00

There are 12 speakers on the call.

Speaker 8

Hello, everyone. Thank you for joining us and welcome to AEVEX first quarter 2026 earnings call. After today's prepared remarks, we will host a question and answer session. If you would like to ask a question, please press star one to raise your hand. To withdraw your question, press star one again. I will now hand the conference over to Jason Gursky, Vice President of Investor Relations. Please go ahead.

Speaker 3

Thank you for joining AEVEX's first quarter 2026 earnings conference call. I'm Jason Gursky, Vice President of Investor Relations, I'm pleased to welcome you here today. Joining me on the call are Brian Raduenz, Executive Chairman, Roger Wells, the company's Chief Executive Officer, and Todd Booth, AEVEX's Chief Financial Officer. Before we begin, please note that on this call, certain information presented contains forward-looking statements, including our 2026 outlook, backlog, total addressable market opportunity, production ramp-up, growth and M&A strategy, and capital allocation priorities. Our forward-looking statements are based on current expectations, forecasts, and assumptions, involve risks and uncertainties. These risks are described in AEVEX's reports filed with the SEC, including our IPO prospectus. I'd also like to note that we will discuss a number of non-GAAP financial measures on this call.

Speaker 3

Our earnings, press release, and presentation, which were also published earlier today and can be found on the Investors section of the company's website, contain a reconciliation of any non-GAAP financial measure to the most directly comparable GAAP measure. The content of this conference call contains time-sensitive information that is accurate as of only today, May 20th, 2026. The company undertakes no obligation to make any revision to any forward-looking statements contained in our remarks today or to update them to reflect the events or circumstances occurring after this conference call. With that, I'd like to turn the call over to Brian for some opening remarks.

Speaker 1

Thanks, Jason. Good afternoon, and thank you for joining our first earnings call as a publicly traded company. Before we get into this quarter's details, I want to take a moment to express my sincere gratitude to the people who made this milestone possible. When we founded AEVEX, we believed a small, dedicated team could take on tough challenges and deliver meaningful capabilities to those who rely on us. Today, as I look across this company, I'm incredibly proud that we have grown into a thriving organization built on agility, innovation, and trust. To our employees, thank you. Your talent, determination, and commitment to our mission are the foundation of everything we've achieved and the culture that will drive game-changing results for years to come. To our customers and partners, we are grateful for your trust.

Speaker 1

Your missions inspire us, and your feedback pushes us to constantly evolve and work on the best available solutions. To our suppliers, thank you for standing with us as we've scaled, adapted, and prepared for this next chapter. Your reliability and collaboration play a vital role in our success. To our new shareholders, welcome. We're excited to have you join us as we continue building on our strong foundation. Our IPO marked an important step forward, one that strengthens our ability to invest, expand, and accelerate our growth over the long term. As I reflect on the current environment, it's clear we've built just the right company for just the right time.

Speaker 1

Defense planners are calling for a stronger industrial base for autonomous systems, for innovative, agile companies that can both respond to rapidly evolving operational requirements and produce at scale, and for new acquisition, for battlefield-tested solutions gain the advantage. For AEVEX, these priorities are in our DNA. We are also seeing bipartisan support and broad agreement that our forces need substantially more of the capabilities we produce and increased funding to bring them into the field. Affordable, autonomous systems like ours are now among the most effective solutions, which we believe creates durable demand. Our most recent proof point of our position in the market is our $18.5 million contract award from the US Air Force for delivery of autonomous aircraft for One Way Attack missions that we announced last week. These additively manufactured Group 3 systems include our AI-enabled CompassX autonomy stack and are designed for affordability and mission effectiveness.

Speaker 1

That's a formula that works and a model we believe we can replicate and scale. This is an exciting time for AEVEX, and we intend to continue to be a leader through this transformational period for our industry. The results you'll hear from Roger today are early evidence of this alignment between our strategy, our technology, and where the market is headed. With that, I'll hand the call over to our CEO, Roger Wells, who will walk through our first quarter results and share more about the momentum we're seeing across the business. Over to you, Roger.

Speaker 9

Thanks, Brian, good afternoon, everyone. It's a pleasure to welcome you to AEVEX's first earnings call as a public company. I'm excited to be here. I want to begin by thanking our employees for their unwavering commitment to supporting the critical mission needs of our customers. To our newest shareholders following the IPO, thank you for your confidence in our vision and in the work ahead. Before reviewing our first quarter results, I'd like to take a moment to reintroduce AEVEX to those getting to know us and to outline the priorities we're focused on over the next 12 months. Please turn to slide 3. AEVEX develops and produces combat-proven autonomous systems that provide the U.S. and its allies a meaningful competitive edge on the battlefield.

Speaker 9

To date, we've delivered over 6,200 systems, and we currently have orders to deliver over 3,900 units in 2026 alone. Our focus is straightforward: solve complex operational challenges through daily innovation while maintaining a relentless commitment to cost-effective solutions, high-volume manufacturing, and consistent delivery on timelines that are operationally relevant. Let's go to slide 4. We do all of this from two complementary operating segments. Tactical Systems focuses on autonomous unmanned systems in both the air and maritime domains, as well as our differentiated mission autonomy software and technology stack, CompassX. Global Solutions delivers operationally focused services, including manned aircraft modifications that act as a force multiplier. Both segments are deeply embedded with our customers, helping us anticipate the needs and invest appropriately, whether through internal research and development to accelerate new capabilities, or through capacity to help ensure timely delivery of mission-critical assets. Please turn to slide 5.

Speaker 9

At this point, demand for what AEVEX produces is robust and growing. Autonomous systems are becoming more important to the strategy and tactics of the U.S. Department of War, and they are increasingly important to our international allies and partners. The FY 2027 presidential budget projects meaningfully higher spending across the very categories we serve, including UAVs and USVs, with over $50 billion in requested appropriations. The chart on the right-hand side of this slide reflects our view of the market before those incremental dollars flow through, which suggests upward bias on our total addressable market and growth rates. As the DAWG's Defense Autonomous Warfare Group, the DAWG, finalizes plans for the billions requested for autonomous systems, we expect additional clarity and opportunity.

Speaker 9

We think this further validates our belief that we are in a global defense super cycle where autonomous unmanned systems, similar to those provided by AEVEX, will be in high demand and part of every major conflict in the future. Our goal is straightforward: grow in line or faster than the markets we serve by continuing to innovate and scaling efficiently as volumes rise. Let's go to slide 6. Autonomous systems are rapidly proliferating across the modern battlefield, and AEVEX is positioned with a portfolio of proven systems across both air and surface domains. Importantly, our platforms are backed by an internally developed and differentiated mission autonomy technology stack. This lets our systems operate in contested environments while offering a competitive edge in the market.

Speaker 9

Beyond platforms, our advanced deployment architectures include in-theater additive manufacturing, designed to deliver next-generation capability forward, accelerate fielding timelines, and enable real-time adaptation in contested logistics environments where traditional supply chains cannot reach. Please turn to slide 7. We have customers across the military services, the intelligence and special operations community, and a growing base of international allies. These customers are engaged in complex mission in the most contested environments, and we're proud of these partnerships and of the tangible impact our systems have in real-world missions. Moving quickly to slide 8. I really like this slide, as I think it does a good job of describing our alignment with our customers and our differentiation from others in the market. The DAWG, as many of you know, is prioritizing open architectures, reduced vendor lock, scalability, and proven performance. AEVEX checks each one of these boxes.

Speaker 9

Our platforms are modular, interoperable, and battle proven, helping us be highly competitive and to win new programs and awards. Let's go to slide 9. At the center of what we do is our CompassX navigation and autonomy ecosystem, which includes CompassCore, our integrated hardware and software architecture. This is then paired with AI-powered vision-based navigation, AI-driven mission planning and control, resilient positioning, and advanced mapping capabilities. Importantly, all of this is done by employing a modular open systems approach, or MOSA, that allows us to quickly and affordably plug and play leading and domain-specific payloads, software, and systems into our product. This way, our customers can get the most advanced solutions available on the market. In our view, this technology stack is a key differentiator for the company and helps meet the operational requirements that ultimately drive wins. Please turn to slide 10.

Speaker 9

We couple our technology with a highly scalable, certified manufacturing footprint capable of producing over 1,000 units per month. This capacity far exceeds our current volume, supporting our long-term growth plans and giving customers confidence that we have the capacity of scaling at the pace that their missions require. Let's go to slide 11. We've talked about the fact that our technology approach aligns with customer needs and that we have the ability to ramp production. Now let's turn to our combat-proven systems. We have a broad portfolio of aerial and maritime unmanned systems that have been conducting successful missions for years with over 30 unique customers, and we have deployed over 35 unique UXS platforms in the last 3 years.

Speaker 9

Our products have been out there succeeding in incredibly challenging environments by providing critical mission needs to the warfighter, all powered by our CompassX autonomy platform that has delivered time and again. Please turn to slide 12. I think the benefit of this experience is best demonstrated by the work we've done to support operations in Ukraine. We successfully executed on the Phoenix Ghost program for 2022 to 2025, providing the Ukrainians capabilities that met their urgent timeline and helped them defend their country against a much larger adversary. Our success on that program led to a follow-on program that we continue to execute today, which we call the EUCOM Deep Strike program. Taken together, these programs account for over 9,300 systems delivered and committed through the end of 2026 to support combat operations and $1.2 billion in total contract value.

Speaker 9

They've also helped inform our customers' views on what the future of drone dominance can look like. All this has opened up a robust pipeline of over $8 billion across the full range of our UAS and maritime platforms. Please turn to slide 13. Our growth strategy is diversified and momentum is strong. We're capturing share with existing U.S. customers, expanding our domestic base, growing internationally as allied budgets rise, moving into high-value adjacencies, all while evaluating strategically aligned M&A. Let's move to slide 14. In the near term, we are focused in on 4 areas of critical need for our U.S. customers, which provide us line of sight on opportunities for growth and broader diversification over the midterm. These areas include both service-level requirements for Launched Effects, One Way Attack, Long Range Precision Strike, as well as combatant command needs, particularly in the CENTCOM AOR.

Speaker 9

These represent over $2 billion in potential follow-on and new work. We feel well positioned across all four of these pursuits, with several initial production awards already in place. The precise timing of additional DOW bookings is always fluid. We have active proposals and negotiations ongoing, and we anticipate a healthy backlog position exiting the year on the heels of awards across these four specific pursuits. That's just four pursuits. We are, of course, actively working many more, both domestically and internationally, that in our view, could strengthen the growth outlook even further. Please turn to slide 15. The organic growth we just discussed could be further bolstered over time by disciplined M&A.

Speaker 9

We expect to be acquisitive, and we expect to focus on adds that strengthen the core, provide opportunities to move into strategically aligned adjacent markets where we can be competitive, help us garner access to innovative technologies and key skills, or that further differentiate our solutions. Like awards on the organic side, it's tough to predict the timing of M&A, but we have several active pursuits, and we'll be looking to provide updates on those, if any, at the appropriate time. Let's move to slide 16. Let's turn our attention now to 2026 and focus areas for the year. Todd's going to go through quarter one numbers in a few minutes, but I wanted to first lay out our five key priorities. To begin, and not surprisingly, after all that I've discussed thus far, we are focused on accelerating growth.

Speaker 9

We are actively shaping several large programs in the pipeline, and we're continuing to invest to help us secure those wins. At this point, we anticipate a book-to-bill in excess of one for the full year and to enter 2027 with solid backlog coverage. We're also focused on enhancing operational performance, including driving operational efficiency and scaling production. I talked earlier about this being a key area of differentiation for us, but it's still something that you have to go do. We're laser-focused this year on enhancing program management, integrating our business systems, and implementing AI-aided execution tools to improve efficiency, supply chain management, and our industrial partner ecosystem to increase resilience. We've been successful to date in demonstrating our ability to produce at high levels, but there's always more to do. Of course, we're focused on expanding margins.

Speaker 9

We expect to achieve this by working to keep cost in check to drive OpEx leverage, maintaining discipline with our bidding activity, and driving operational efficiencies through continuous improvement. We're focused on improving working capital efficiency and driving higher levels of free cash flow. Finally, we're going to focus on continuing to build high-performing teams and a success-minded culture. We'll be looking to attract the best talent and add experienced folks to the team, create professional development opportunities, and put a comprehensive workforce management system in place. Before I turn the call over to Todd, I'm going to walk through the key highlights from this first quarter. Please turn to slide 17. We experienced solid revenue growth driven in large part by the EUCOM Deep Strike program.

Speaker 9

Bookings this quarter were in line with expectations. We expect to see growth through the rest of the year as we hit key program awards in the months ahead. Importantly, our trailing 12-month book-to-bill was 1.16 at the end of quarter one, with several important awards during the quarter for our Atlas product and the Tactical Systems segment and for margin-accretive follow-on work in Global Solutions. From an investment perspective, we made progress in the development of the second version of our CompassX technology, which is designed to provide customers with even better modularity and functionality across all our platforms. Its smaller, lighter form factor is easier to produce, which should help us drive costs down and improve our competitive positioning in the market.

Speaker 9

On the operational performance side of the equation, unit volumes were up roughly 440% year-over-year in our Tactical Systems business, demonstrating the company's ability to scale production. We also continued to develop our supply chain capability with focus on enhancing material planning and sourcing. These efforts are yielding positive impact on the vendor base and material flow through the supply chain, factory, and into products. Importantly, on-time delivery rates improved as the quarter progressed, and we're seeing less rework on the factory floor, a clear demonstration that operational efficiency continues to move in the right direction.

Speaker 9

Our adjusted EBITDA margins improved nearly 4,200 basis points this quarter versus a year ago, driven by higher volume, improved efficiency, better product mix, and operating expense leverage. With regard to working capital and free cash flow, both improved this quarter versus a year ago, and we continue to focus on contract terms with suppliers and customers and on a disciplined capital deployment to allow us the opportunity to fund strategic growth opportunities. Finally, we continue to make investments in systems that will improve our workforce planning and in programs that will help us retain top talent. As a result, our employee net promoter scores are strong and improving, showing that AEVEX employees are increasingly excited about the work at the company. With that, let me turn it over to Todd for a discussion of our Q1 financials and our outlook for 2026. Todd, go ahead.

Speaker 11

Thanks, Roger. I too would like to welcome everyone to our first earnings call as a public company. I'm excited to be here and to work with our customers, employees, suppliers, and shareholders in the years ahead. What I plan to do today is walk through the company's results for the first quarter, including segment-level details and cash flow dynamics, then provide an update on the balance sheet, particularly considering the recent IPO. I will then end with a discussion of our outlook for 2026. Please turn to slide 18. Revenue in the first quarter was up 307% year-over-year to $216.7 million, driven by the Tactical Systems, where we are executing on a large unmanned aerial system program named EUCOM Deep Strike that was awarded last year. Net income was $21 million in the quarter, compared to a net loss of $27.3 million in Q1 2025.

Speaker 11

The increase was driven by higher revenue, operational efficiencies, and lower research and development spending. As you will note from our historical financials, both revenue and profitability improved in the second half of 2025 as programs were put on contract and production ramped up. Importantly, this trend continued into 2026, with adjusted EBITDA margins in the first quarter improving significantly year-over-year, driven by higher revenue, production efficiencies, and lower operating expenses as a percentage of sales. Going forward, we expect margins to be more similar to the second half of last year and the first quarter of 2026 than what we experienced in the first half of last year. Please turn to slide 19. Our Tactical Systems segment saw revenue growth of 548% year-over-year to $190.8 million, driven largely by the execution of the EUCOM Deep Strike program.

Speaker 11

The higher revenue led to operational efficiencies and adjusted EBITDA margins of 20.2% of sales in Q1 2026. In our view, this quarter's margins level are more reflective of the longer-term potential of Tactical Systems, though quarter-to-quarter fluctuations are likely to be driven by volume levels, sales mix, and timing of research and development spend. Let's turn to slide 20. Global Solutions segment revenue increased 9% year-over-year to $25.9 million due to higher revenue from aircraft modifications and testing products and services which have good margins. This favorable sales mix and higher sales volume led the segment adjusted EBITDA margins to 16.2% in the quarter. We believe margin rates in Global Solutions going forward in 2026 will be slightly lower than Q1 2026, given the mix of programs. Please turn to slide 21.

Speaker 11

In operating activities for the three months ended March 31st, 2026, was $10.4 million, compared to net cash used in operating activities of $20.1 million for the three months ended March 31st, 2025. The $9.8 million favorable change in cash flow from operations was primarily due to the $49.1 million increase in net income, net and non-cash items, offset by the $39.3 million net decrease in operating assets and liabilities during the three months ended March 31st, 2026, versus the $700,000 net decrease in operating assets and liabilities during the three months ended March 31st, 2025.

Speaker 11

The $40.1 million net decrease in operating assets and liabilities during three months ended March 31st, 2026, is primarily due to the timing of our cash payments to fulfill the EUCOM Deep Strike program versus the timing of cash receipts from the customer, combined with an overall increase in revenue in the first quarter of 2026 versus the fourth quarter of 2025. Going forward, we plan to closely manage working capital and capital expenditures, Note that we expect to invest in inventory levels to support our customers if the need arises. Turning to the balance sheet, we ended the quarter with $257.9 million in debt and $27.4 million of cash on hand. These metrics have changed significantly since the IPO in April. Net proceeds from the IPO were roughly $345.9 million.

Speaker 11

Importantly, subsequent to the IPO, we also entered into new credit facilities and as of now have a $100 million term loan on the balance sheet and have access to two undrawn facilities, a $75 million delayed draw term loan and a $200 million revolving credit facility. We used the proceeds from the IPO and the term loan to pay down debt and add cash to the balance sheet. In our view, the collection of these transactions currently provides the company sufficient liquidity to execute on its near-term growth strategy. Let's turn to slide 22 for a discussion of the outlook for 2026. At this point, we expect total company revenues to land in the range of $600 million-$620 million, and we expect adjusted EBITDA in the range of $88 million-$94.5 million for 2026.

Speaker 11

Other noteworthy items include depreciation and amortization, which we expect to be roughly $21.3 million, and interest expense to be roughly $13.2 million in 2026. Of note, this guidance is predicated on some major assumptions that I would like to point out, including our expectation the government will remain open and that the general contracting and funding environment does not materially change. Finally, I would like to take a few minutes to discuss the expected cadence of revenue and adjusted EBITDA this year to help with your modeling. At this point, we expect first-half revenue to represent 62%-64% of the midpoint of our full-year guidance for revenue, and for adjusted EBITDA to represent roughly 65%-67% of the midpoint of our fully adjusted EBITDA guidance.

Speaker 11

As discussed throughout the call, we've had a good start to the year, with strong performance in both of our reporting segments, including higher accelerated material receipts that continue into the second quarter and which drive higher revenue recognition. In the second half of the year, we will have more deliveries but less revenue given this phenomenon. With that, I would now like to hand this call back over to Roger for some closing remarks. Roger?

Speaker 9

Great. Thanks, Todd. Please turn to slide 23. Before turning it over to Jason for Q&A, I want to spend a few minutes talking about how we're viewing the world on a multi-year basis. We're not going to get into practice or providing out year guidance. I thought a framework on how to think about our financial model would be helpful for investors. First, our goal is to grow in line or faster than the underlying markets we serve. Our strategy to do that is to stay aligned with our customers' requirements for open architectures, scale production, and proven products. Fortunately for us, market growth looks like it's going to be healthy over the longer term, driven by increased adoption of autonomous systems, and in the near term, by the operational tempo of our customers.

Speaker 9

Second, our focus will be on trying to expand margins year-over-year through scale, absorption, productivity mix, and OpEx leverage. Third, we plan to be prudent with our capital, with deployment priorities focused first on IRAD and CapEx to drive innovative new products and scalable production, followed by M&A, and then debt paydown. Finally, leverage. We have very little of it now post-IPO, but we've operated at higher levels in the past, and we expect to remain flexible, including with the use of debt to fund organic and inorganic growth when we see the right opportunities. At this point, we think roughly 3.5x leverage would be our targeted upper bound. To wrap up, I'm really excited about what's in front of us at AEVEX.

Speaker 9

We believe the markets we are serving are poised for substantial growth, driven by a strong customer demand for ever-increasing levels of autonomy. Our technology stack is combat-proven in the most challenging operational environments, and our production system is primed with capacity to scale. All this points to expected robust organic growth and margin expansion in the years ahead, which we anticipate will be supplemented with prudent capital deployment into M&A. Importantly, with our recent IPO proceeds, we now have improved financial flexibility to aggressively execute on our growth strategy. With that, I'm going to turn things over to Jason to conduct the Q&A session.

Speaker 11

Thanks, Roger. Operator, at this point, I'd like to hand the call back over to you to conduct the Q&A session. Before we do, I just want to ask everybody to limit themselves to one primary question and one follow-up. With that, Operator, please open up the lines for the Q&A session. Thanks.

Speaker 8

We will now begin the question and answer session. If you would like to ask a question, please press star one to raise your hand. To withdraw your question, press star one again. We ask that you pick up your handset when asking a question to allow for optimum sound quality. If you are muted locally, please remember to unmute your device. Please stand by while we compile the Q&A roster. Your first question comes from the line of Noah Poponak with Goldman Sachs. Your line is open. Please go ahead.

Speaker 7

Hey. Good afternoon, good evening, everyone, and congrats on being out.

Speaker 3

Hey, thanks, Noah, appreciate it. Great to have you here.

Speaker 7

Maybe instead of two questions, maybe one kind of long one. I think the market sees the strength in the product and the strategy and the long-term growth in unmanned. I think the big question people have in the near to medium term is the transition from Ukraine-oriented to not Ukraine-oriented. All the numbers you gave here imply the second half of 2026 revenue is a decent amount lower than the first half. We know you plan to grow next year, so that run rate of second half 2026, if that continued into 2027, you wouldn't grow next year. Help me understand the shaping. I guess the funded backlog kind of covers this year. The funded backlog is going to need new additions to it, right? In order to grow next year and complete this transition.

Speaker 7

Maybe you can give us more color on the shape and composition of the backlog as you go through the year. It kind of looks like you're saying there's a little bit of a lull sort of back half 2026, first half 2027, as you're ramping down Deep Strike and winning new business, and then the new business is kind of ramping as you go through 2027. It's just, any help you can provide on triangulating all of those pieces, I think would be super helpful to the market.

Speaker 9

Yeah, sure. Let me unpack a little bit of that, Noah. First, we have a healthy backlog position, and at this point in the year, we have over 90% of our fiscal year 2026 revenue covered in funded backlog. At this point in the year, we're positioned to continue to build backlog for next year. A really, really healthy position. As you point out, we continue to see strong demand for our products and technologies from a diversified customer base across several key program portfolios. Namely, Launched Effects, which we had secured bookings and orders for in the first quarter, and continue to see those transitioning from pipeline into backlog as we go through the year. One Way Attack, Long Range Precision Strike, and then certainly support to combatant commands across multiple AORs, including CENTCOM, which will offer potential upside.

Speaker 9

As we pointed out in the prepared remarks, the trailing 12-month book-to-bill was 1.16, and we do anticipate having a book-to-bill over 1 for the year, which gives us a healthy funded backlog as we move into 2027. As you rightly point out, the first half of 2026 is heavily loaded, as we've accelerated material into the first half of the year to support accelerated deliveries for our customers. It's something that they've asked for, it's operationally important, and we're focused in on doing that. The second half will be, as we pointed out, less revenue than what we're seeing in the first half, but it still gives us the opportunity to continue to build on the book of business we're seeing.

Speaker 9

I think a couple of great examples that point to progress that we're making on those portfolio of programs, the $18.5 million of awards for One Way Attack that Brian mentioned in his opening remarks. Today, we also announced another $15.6 million for our Long Range Precision Strike capability. We are continuing to execute on orders. We are responding to numerous RFPs. We are in active negotiations across a number of contracts, and really see strong demand and a portfolio of programs that will transition from our pipeline into backlog as we move through the rest of this year.

Speaker 7

That's super helpful. You expect to end 2026 with a funded backlog higher than where you ended 2025, despite burning off the Deep Strike out of the backlog through the year?

Speaker 9

Yeah, I think we're set up for a very healthy backlog that is supported by our scale and production capacity. I think when we think about an actual number, it's going to be heavily predicated on the timing of orders, which are hard to predict, and the delivery schedule that our customers are going to ask for. We do feel really comfortable with not only the quantity and timing of the orders that are going to come through in the back half of the year, but also our ability to operate in a short cycle environment where we are quickly converting backlog into revenue.

Speaker 7

Right

Speaker 9

afford, at this point, an ending or starting backlog. I think it's safe to say that we've got a lot of confidence and conviction in converting our well-qualified pipeline into opportunities for the year, and confidence in 2027's revenue growth.

Speaker 7

In any one year, what % of revenue, just even if super roughly, should we expect to be that shorter-term book-and-ship?

Speaker 9

Yeah, I think, again, it's going to vary. I think we're seeing focus and priorities change as we enter into operational scenarios and needs. I think, again, when we looked at 2026, we came in at around 80% coverage. I think that, again, we'll roll in with a healthy amount of backlog and the ability to convert, book, and ship within the year, consistent with the growth that we're anticipating for fiscal year 2027.

Speaker 7

Okay. Thank you very much. I appreciate the details. Thank you.

Speaker 9

You got it, Noah. Thank you.

Speaker 8

Your next question comes from the line of Sheila Kahyaoglu with Jefferies. Your line is open. Please go ahead.

Speaker 5

This is Kyle on for Sheila. I had a little bit of a more high-level one on operational readiness, maybe. You call out in the slide some of the commentary out of the Department of War about procuring potentially millions of drones on an annual basis. You're on pace to maybe do 4,000 this year in total, and talked about scaling towards 1,000 per month. Can you give us a little color in terms of how you bridge towards that higher production capacity from here? When you hear those high-level numbers, how you think about winning what you would determine to be sort of your fair share, and ultimately, how yourself and the supply chain are really ready to do those higher volumes?

Speaker 9

Yeah. High level, we firmly believe that autonomous and unmanned systems are going to be a part of every conflict in the future, and that's been validated in Ukraine. We're certainly seeing it be reinforced with what's happening in the Middle East. Generally, a strong need for these types of systems. We have a production system in place that's capable of delivering over 1,000 systems a month. We've continued to build the infrastructure to ensure that we can scale as our customers bring in orders and demand. When we think about the total TAM, obviously there's multiple different classes of unmanned systems. We are seeing a strong focus from our customers on the Long Range Precision Strike capabilities and the One Way Attack capabilities, and a priority around supporting both current operations as well as the operational capability demonstration, evaluation, events, and training.

Speaker 9

We really see a setup where the types of products, technologies, and solutions that AEVEX brings are well-aligned with what the customer is budgeting for and planning as part of their force projections in the future.

Speaker 1

I'd just add 1 thing, that sometimes when you're talking about those numbers, the Group 1 drone space, you could buy a lot of systems with $5,000, and that's obviously not where we're playing. We're very comfortable with our projections and getting more than our fair share in the areas that we're playing in.

Speaker 5

Thanks. If I could just follow up on the supply chain there. I think in the prepared remarks, there was some color about material receipts being better than expected, some reduced rework, and things like that. Can you just talk about where you would expect maybe there to be pinch points as you grow the production system?

Speaker 9

Yeah

Speaker 5

confidence there is in the supply chain?

Speaker 9

Let me talk about fiscal year 2026, and then maybe give some color on a broader perspective. We have the vast majority of our material for the year, either in inventory or on order. We don't see a lot of risk associated with margin compression this year due to supply chain risks. Similarly, the material receipts that we have forecasted are well within our production and delivery window. We'd assess the revenue risk for fiscal year 2026 as low as well. We feel really good about the supply chain position that we have currently against the revenue and deliveries that we forecasted. Certainly for new and follow-on orders, we're pricing accordingly. Now, from a broader perspective, we've really built a very resilient and robust supply chain infrastructure over multiple years as we've scaled and built systems for a broad range of customers.

Speaker 9

We have a mature and well-structured BOM with a solid supply chain ecosystem built around it. We have largely onshored our supply chain and created NDAA-compliant systems. We've implemented strategic supply and pricing agreements, as well as alternative sources of supply for all our critical components. We've effectively leveraged our balance sheet to bring critical components in ahead of potential downstream supply chain risk. We really feel good about where we are from a supply chain perspective and believe that we've done a really good job of mitigating risk, not only for FY 2026, but for the future. Additionally, I'd say our modular open system architecture lets us very quickly and very affordably integrate new technologies and components right into our system, which further mitigates the risk of supply chain constraints and obsolescence in the tech stack.

Speaker 5

Thank you.

Speaker 9

You got it. Thank you.

Speaker 8

Your next question comes in the line of Kenneth Herbert with RBCCM. Your line is open. Please go ahead.

Speaker 4

Yeah. Hi, good afternoon, Roger and Todd, and everybody. Congratulations again. I just want to maybe start off, you've called out, continued to call out some of the same programs, Launched Effects, One Way Attack, Long Range Precision Strike, and others, and feel pretty good about your potential there. When you look at the absolute amount of money, whether it's through the Defense Autonomous Warfare Group or other funding vehicles, it seems like there would be an expectation that the opportunity set for you should expand, especially as you think about, obviously, where the business can be in the next three to four years. When do you expect to be able to talk about sort of other opportunities beyond sort of what you've outlined today? Is that something we should expect this year, just considering your confidence around bookings this year?

Speaker 4

As part of that, how well-defined do you think the customer is in their thinking around taking some of these high-level numbers? I know, obviously, we don't have a fiscal 2027 budget. How well-defined do you think the customer is in shaping some of these into programs that could ultimately be bid upon and won by you?

Speaker 9

On the 4 primary programs that offer revenue diversification as well as product diversification, just want to point out that they're a portfolio of programs. We're going to see multiple opportunities and programs or production contracts within each one of those categories. There are more programs as we move forward, as we develop and book those pieces of business. Similar to the OWA contract we just received and the Long Range Precision Strike. We'll be highlighting those as proof points as we go along. Again, we really see those 4 areas as significant opportunity spaces, over $2 billion in opportunity value. That gives us the confidence as we roll off the backlog associated with the EUCOM Deep Strike program. Really setting us up for that revenue in the back half of 2026, 2027, and beyond.

Speaker 9

As you point out, those are just four pieces of our portfolio. We have over 30 unique customers, and we typically execute over 100 active contracts a year. A lot of them are smaller than these four portfolio areas. However, they are growing. I will give a great example in our Mako. We have a growing and developing portfolio of capabilities in the unmanned surface vehicle market. Over the next several years, we see that growing and expanding. I also think that we are going to see a significant amount of international work as we develop opportunities with our partners and allies around the world. While it is relatively small, single-digit revenue in fiscal year 2026, we do see this grow to be a significant percentage of our revenue out over the next several years.

Speaker 9

Just a couple of examples of that, we've recently won work with Finland, with Chile, and with Lithuania. Great examples of how we're developing and growing international revenue, certainly at an accretive margin. As we move through the year, as we move through the execution and conversion of our pipeline into backlog, we'll be highlighting and showing off these cases as proof points around the revenue diversification and growth.

Speaker 4

Great, thanks. Just as a follow-up, has anything changed in your view that Ukraine revenues should go to zero in 2027? Are you getting any signals that we could see that bleed into 2027 or be a source of revenue in 2027 as well?

Speaker 9

Yeah, as we've highlighted, we haven't factored in any follow-on Ukraine work from the EUCOM Deep Strike program into our financial growth projections for 2027 and beyond. Obviously, if they come through, we're well-positioned to execute on those, and it would offer upside to our existing forecasted growth rates.

Speaker 4

Great. Thank you.

Speaker 9

Yeah, you got it, Kenneth. Thank you.

Speaker 8

Your next question comes to the line of Louie DiPalma with William Blair. Your line is open. Please go ahead.

Speaker 6

Thanks. Roger, Todd, and Jason, good afternoon. Also, I say congrats on your IPO and the inaugural earnings call.

Speaker 9

Absolutely.

Speaker 6

My question is, it's been well-documented that your Phoenix Ghost Disruptor was one of the leading drone aircraft systems in the Ukraine theater. Are you able to share whether your aircraft have been utilized in the Middle East theater? Related to this, the LUCAS long-range drone platform that replicates the Shahed, that has gained significant attention in the Middle East conflict, and it seems that your Disruptor has significant overlap with that LUCAS system. How does Disruptor compare with LUCAS, and what's the general potential involvement in the Middle East? Thanks.

Speaker 9

On the Phoenix Ghost program, we deployed numerous different systems across Group 2 and Group 3. That portfolio of capabilities that were deployed operationally as all-combat capability really informed how we thought about developing the capabilities, the technology, and the solutions that were going to be required as missions evolved and combat evolved. The Disruptor was certainly a key piece of that. Over time, we've continued to develop and evolve that platform and make it a more sophisticated, more capable, long-range, precision strike system. I think where we really differentiate ourselves is the fact that our systems, to include the Disruptor and the Disruptor family of platforms, have the capability of operating in highly contested environments where GPS is being jammed, communications are being denied, electronic warfare is being deployed, and across the battlefield by a technically sophisticated adversary.

Speaker 9

The capabilities that we've evolved through our experience in Ukraine and in close working relationship with our U.S. government partners, have given us this really unique and differentiated set of capabilities that we bring to market. I'm not going to comment about whether or not our systems are operationally deployed with specific customers in various AORs, other than to say we are actively supporting the needs of our customers with combat-proven, highly flexible systems as the need arises. When we think about our position in the market and our differentiation, I would point out a couple of things. One, we are combat-proven, having delivered over 10,000 systems by the time we end FY 2026, with the vast majority of them being put into combat, we've got scale.

Speaker 9

We've got a flexible manufacturing system that's capable of producing over 1,000 systems a month affordably and on timelines that are operationally relevant. We've got a technology stack that is built to be modular and be open, giving our customers the ability to very quickly configure the systems to meet their specific mission needs. Those really come together to highlight how we differentiate ourselves in the market and how we differentiate our systems' capabilities on the battlefield.

Speaker 1

Louie, this is Brian Raduenz. I'd just add, too, we're here at SOF Week this week, and we have had a whole parade of senior military officials coming by to thank us for our recent performance and what we've been doing for the community. We'll kind of leave it at that, but there's a lot of folks that are very impressed with the work that we've been doing.

Speaker 6

Definitely, I was at your booth at SOF Week, meeting with Manan Patel. Another question, the backlog for your EUCOM Deep Strike program, it has been winding down. You've been very clear about that. Is there some potential that a portion of the program's funding is renewed and simply redirected to other geographies?

Speaker 9

Yeah. Our focus is really on meeting the contractual terms of the contract, and it's a very important customer for us and a very important need. We are delivering to that customer, to the contracts, and how they deploy those systems is something that we won't comment on. Again, it's safe to say that we're very closely aligned with all of our customers. We are producing the systems that they need to support not only real-world operations but also the events associated with technology evaluation capability, effectiveness assessment, and training. We're going to keep our focus in on operational delivery and making sure that we continue to evolve our technology stack.

Speaker 6

Excellent. Thanks, everyone.

Speaker 9

Great. Thanks, Louie.

Speaker 8

Your next question comes from the line of Brian Gesuale with Raymond James. Your line is open. Please go ahead.

Operator

Good evening, guys, thanks for taking my questions. Great job on the first print here. The after-hours trading seems to like it quite a bit. Lot to like there. I wanted to just kind of dig into the pipeline a little bit. The $8 billion has grown substantially over the course of the last year, but really even over the last couple of months, it appears. Can you give us a sense for when you expect the majority of that work to be contracted out? Maybe also when you look at that pipeline, does that matriculate into, when you talk about a book-to-bill greater than one, 20 or $30 million awards, are there a couple of hundred-plus million dollar awards in there when you look at the complexion of that?

Operator

How might we think the rhythm of that progresses throughout the calendar year here? Thank you.

Speaker 9

Yeah. We have a well-qualified pipeline. As you mentioned, it's over $8 billion. It continues to grow and expand. It's really composed of opportunities that are either sole source follow-ons, opportunities that are extensions of existing production contracts, or opportunities that we believe we've got a highly competitive capability with limited competition. We think that our pipeline is really prepared to transition from opportunity into funded backlog. The majority of that pipeline takes us out through fiscal year 2028, although, from a sales force perspective, we have opportunities that go out through fiscal year 2030. We're focused in on making sure that as we develop the products and technologies, as we shape and work with our customers to ensure that they're getting the systems and the capabilities they want, we're constantly looking at scale, we're looking at configurability, and we're looking at mission effects.

Speaker 9

The opportunities that we have in the pipeline consist of $50 million opportunities that we think will come in incremental chunks as well as larger opportunities that we think will transition and execute over multiple years. There really isn't a single contract type or single production quantity or configuration in our pipeline. It's really designed to meet the needs of our customers, both operationally as well as budgetarily. What I will say is that we continue to see demand grow across all of our product portfolios. The Group 2, Atlas systems for the Launched Effects–Short Range and the hunter killer type collaborative autonomous operations, the Group 3 Long Range Precision Strike and One Way Attack capabilities in our Raker platform and our Disruptor platform, and then certainly a growing position in the unmanned surface vessels with the Navy, as well as multiple different international partner.

Speaker 9

Really, again, a high degree of conviction in our pipeline and the belief that our systems are well-positioned to meet the needs of our customers on a timeline that makes sense for them.

Operator

Appreciate the detail there. Thank you very much. Maybe just one, the ForgeX seems to be a very differentiated part of the business. I'd like to give you just maybe a minute or two to riff on some of the opportunities, how you're seeing that grow. Obviously, you're getting some orders, which are really encouraging, but maybe just take us into the growth of interest from your customer sets with that very unique capability.

Speaker 9

Yeah. The additive manufacturing capability was brought to AEVEX through a strategic acquisition of the assets of RapidFlight. Not only did it bring a portfolio of additive manufactured systems, the Onyx, the Raker, the Vandal, that are seeing significant adoption by our customers, but it also brought us the knowhow, the design, the technology to conduct additive manufacturing. We're actually incorporating that into our manufacturing system to produce more efficiently, more effectively, and more quickly for our customers. We're incorporating additive manufactured parts across all of our product lines. The ForgeX. The ForgeX is a capability where we've built additive manufacturing systems and capability into a deployable container.

Speaker 9

That gives us the ability to not only provide additive capability, the ability to produce systems and components downrange, but it also gives our customers the opportunity and capability to take that downrange and fix systems that are broken, manufacture new components to adapt and integrate new payloads and systems. It's a great capability, and it'll allow our customers and ourselves to overcome some of the challenges associated with geographically distributed and contested logistics.

Operator

Great. Appreciate the color. Thanks so much.

Speaker 8

Your next question comes to the line of Ronald Epstein with Bank of America. Your line is open. Please go ahead.

Speaker 10

Hey, good afternoon. Good evening, guys. Can you speak a little bit to capital deployment, in particular, what you're seeing in the M&A pipeline, and if there's any areas that you're interested in terms of, is it little motors, or is it components, or what it could be?

Speaker 9

Yeah. Thanks, Ron. Hey, we're going to focus in on good companies that are growth-oriented and accretive in nature. We're going to be very active in this front. While we can't forecast the timing of downstream activities, we will be implementing a very disciplined and strategic approach to acquisition. I think they really fall into 3 categories. We're going to look at companies that strengthen the core and bring both platforms and capabilities that enhance our offerings. We're going to be looking at opportunities to move into closely aligned adjacent markets where we believe the combined power of AEVEX and the acquired company will allow us to accelerate growth. We're going to be looking at acquisitions that have really innovative technology that enhance our strategic position, not only across our portfolio, but also within our CompassX ecosystem.

Speaker 9

Those are really the three areas that we're focused in on. What we won't be doing is any transformational M&A that deviates from our business model, our strategy, or our approach to growth. Some of the areas that we would look at from an adjacency perspective would be expanding into the unmanned surface vessel more aggressively, potentially unmanned surface vehicles, counter-UAS from the perspective of fast interceptors, something that we're strategically aligned with in our existing portfolio, or other adjacent markets that enhance our systems capabilities in an ever-changing, dynamic battlefield.

Speaker 10

Got it. Then, from an evaluation perspective, what are you seeing in private markets? Can you speak to that at all?

Speaker 9

Yeah. I'm not going to forecast what we would be looking at from a valuation perspective. Really, again, we're going to be looking for good companies that are growth-oriented and accretive financially to what we have now. We've got a very healthy balance sheet and the ability to deploy both capital and stock to bring in these good companies. I would see a leveraged position with an upward bound of about three and a half times, and certainly, obviously, using our equity as capital to bring in companies that we think are very closely aligned and can help us grow.

Speaker 10

Got it. Thank you very much.

Speaker 9

Yeah. Thanks, Ron.

Speaker 3

Okay, operator, I think we've got time for one more question.

Speaker 8

Your last question comes from the line of Jan-Frans Engelbrecht with Baird. Your line is open. Please go ahead.

Speaker 2

Good afternoon, Roger, Todd, and Jason. Congrats on a really strong print here out of the gate. I'm on for Peter Arment today. Just maybe a high-level question. If you guys can talk about Group 2, Group 3, how should we think about the typical refresh cycle? Just in terms of R&D, was modestly down for AEVEX this quarter, but the need to continue spending on R&D as a percentage of sales, what is sort of the right ballpark? Just in terms of if you look at budget, it's obviously going to attract even more competition. How do you sort of stay ahead of incumbents and just new entrants as well?

Speaker 9

We're going to continue to focus on building the capabilities that our customers need. FY 2025 and into the first part of 2026 was really focused in on building the next generation of system, our Atlas class of Group 2, which we've actually gotten significant traction on with the Army's Launched Effects–Short Range, as well as continuing to enhance our CompassX differentiated technology stack, enhancing our ability to do precision navigation, and timing, and autonomy. Our collaborative approach, as well as mission effects for terminal guidance and automatic target recognition and identification. We are going to be very focused and in lockstep with our customer, ensuring that the investments that we do make are a part of a well-structured product development roadmap, and designed to meet the needs of our customer.

Speaker 9

Really, we're building off of a long legacy of combat-proven operations and a deep, trusting, and strong working relationship with our customers. The percentage in our mind is less important as it is making sure that we are executing the innovation, the research and development, and the product improvement that our customers need to be successful on the battlefield. Certainly, we're going to use internal research and development dollars as well as CapEx as part of our growth strategy organically. We also work very closely with our customers to execute contract-funded research and development as well. We think that we've got a strong and good base to build from. We've got a portfolio of platforms and technology that is well-positioned for the future. We're going to focus in on innovating where it matters and it's meaningful for our customer.

Speaker 2

Thank you. It's very helpful. If I could just do a quick follow-up. If we just look at sort of 2026 guidance, 2026 reconciliation funding has been sort of slow out of the gate in terms of the $150 billion flowing, but did say that it's accelerating. Are you guys assuming sort of anything from the reconciliation bill from 2026 in this year's guidance? How should we think about that? Is it more a 2027 impact?

Speaker 9

We're seeing significant interest and increase in momentum as we move through fiscal year 2026. Our projections and our growth guidance is well-aligned with where we believe funding is for fiscal year 2026, and does not require any reconciliation funding for fiscal year 2027. Again, we've got most of our revenue in funded backlog, and we're going to continue to execute on that. I won't wade into reconciliation other than to say that the demand is high from our customers, and I think it's clear that autonomous unmanned systems being a part of modern force structure is both a bipartisan as well as a bicameral issue, and well-supported across both aisles. We do see a healthy increase in funding for this type of technology, as well as the industrial base as we move through 2026 into 2027 and beyond.

Speaker 9

We really think that AEVEX is well-positioned to capitalize on that budgetary increases.

Speaker 2

Thank you. Appreciate taking the questions.

Speaker 9

Yeah, you got it. Yeah.

Speaker 8

There are no further questions at this time. This concludes today's call. Thank you for attending, and you may now disconnect.

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