This afternoon we also filed a slide presentation with our earnings release and posted the presentation to the investor section of our website under Events and Presentations. Welcome everyone to our third quarter fiscal year 2026 earnings conference call. I will begin by summarizing our quarterly performance, followed by Kevin, who will review our financial results in greater detail and then discuss guidance for fiscal year 2026. This past quarter's results came in below expectations, primarily driven by revenue timing and adjustments made in our Space business.
Given industry-wide delays in government funding along with the shutdown, several orders we anticipated to receive in the third quarter have shifted to the right by a quarter or two. We have a track record of delivering strong results, and our core strengths in product innovation, deep customer relationships, and manufacturing scalability will enable us to capture increased demand in this high-growth market. Strong order flow increased our funded backlog in the third quarter, which is positioning us for record fourth quarter revenue and a solid start to our fiscal year 2027. Before providing details on our progress to achieve our growth targets, let me cover key highlights from the third quarter.
First, we achieved strong orders and grew our funded backlog to $1.1 billion with year-to-date total re-awards of $4.6 billion. Second, we announced several key program awards and bookings in high growth markets where AV holds a competitive advantage over our peers. The demand for cost-efficient AI-enabled autonomous non-lethal and lethal drones and counter drones are unprecedented. Producing in high volume and continuously scaling production ahead of demand are key differentiators that allow us to stay ahead of our customers' needs.
| Metric | Period | Current guidance |
|---|---|---|
| FY2026 revenue | — | $1.85B-$1.95B (lowered; ~12% growth at midpoint over pro forma FY2025) |
| FY2026 adjusted EBITDA | — | $265M-$285M (lowered) |
| FY2026 adjusted EPS | — | $2.75-$3.10 (lowered) |
| Visibility to revised revenue midpoint | — | 98% |
| Adjusted gross margin (full year) | — | high-20s% to low-30s%, improving to low- to mid-30s% in Q4 |
| Metric | YoY | Note |
|---|---|---|
| Total revenue | +143% as reported (+6% pro forma; legacy AV organic +38%) | Below expectations on revenue timing and Space adjustments; shutdown and funding delays shifted orders right. |
| Autonomous Systems (AxS) revenue | +25% vs FY2025 pro forma | Uncrewed aircraft systems up more than 50% (54% ex-Ukraine) on Puma, JUMP 20 and Tomahawk; precision strike/counter-UAS up 21% on Switchblade and Titan. |
| Space, Cyber & Directed Energy (SCDE) revenue | -19% pro forma | SCAR stop-work order and government funding delays; space & directed energy -14%, cyber & mission systems -22% (discontinued programs plus shutdown). |
| Adjusted gross margin | down from 40% (flat vs Q2) | Higher service mix, early-stage product maturation, and $40M of high-margin revenue pushed to Q4 on last-minute shipping/supply-chain issues. |
| Adjusted EBITDA | up from $22M | Incremental BlueHalo results and legacy AV organic growth; sequential margin improvement from ~10% in Q2. |
| Adjusted EPS (diluted) | more than doubled from $0.30 | Higher EBITDA and BlueHalo contribution. |
| GAAP goodwill impairment | — | SCAR stop-work order triggered impairment test; ~17% reduction in acquisition-date value of the acquired space business. |
| Adjusted SG&A | up from $33M (20%) | BlueHalo combination; year-one synergies largely achieved. |
| R&D expense | up from $22M (13%) | Business-model shift; higher absolute R&D on combined company. |
| Cash and investments | -$20M sequential vs Q2 | Inventory build to support Q4 revenue; unbilled receivables still elevated. |
| Funded backlog | — | End of Q3. |
| Unfunded backlog | — | End of Q3; SCAR portion expected to be adjusted following termination for convenience. |
| Year-to-date total awards | — | Strong order flow. |
| Topic | Previous mention | Current period | Trend |
|---|---|---|---|
| SCAR / Space business | — | U.S. Space Force stop-work and intended termination for convenience; $151M goodwill impairment; AV to recompete with a commercialized, firm-fixed-price phased-array solution. | — |
| Commercialization strategy | — | Transitioning several BlueHalo-acquired products (LOCUST, laser communications terminals, laser comm gunsights, phased arrays) to commercial, firm-fixed-price models to scale faster and improve margins. | — |
| Government shutdown / funding | — | Shutdown and funding delays shifted certain Q3 orders to Q4 FY2026 and Q1 FY2027. | — |
| Leadership transition | — | CFO Kevin McDonnell said it was likely his last quarter as CFO. | — |
| Capacity expansion | — | Salt Lake City facility (~140,000 sq ft) expected operational in about a year; Titan production scaling 4x this year toward 10x by FY2030. | — |