Shares of AeroVironment declined in extended trading Tuesday after the unmanned systems manufacturer revised its financial outlook downward for fiscal year 2026. The adjustment follows notification from the U.S. government that it plans to terminate the BADGER agreement associated with the Space Force's Satellite Communications Augmentation Resource (SCAR) initiative. While the company remains eligible to compete for future contracts, the immediate loss of this program has significantly impacted its projected revenue stream.
Financial Results and Impairment Charge
For the fiscal third quarter ended January 31, AeroVironment posted revenue of $408 million, representing a substantial 143% increase compared to the same period last year. This growth was partly driven by the acquisition of BlueHalo. However, the company recorded a significant non-cash goodwill impairment charge of $151.3 million, related to diminished acquisition value. This write-down contributed to a net loss of $156.6 million, or $3.15 per share, for the quarter.
On an adjusted basis, earnings came in at 64 cents per share. This fell short of Wall Street expectations, which had anticipated approximately 68 cents per share on revenue close to $476 million. Analysts had been forecasting a major rebound, with previews suggesting sales could surge around 185% year-over-year, making the shortfall particularly notable.
Revised Guidance and Market Reaction
The company now anticipates fiscal 2026 revenue in the range of $1.85 billion to $1.95 billion, with adjusted earnings projected between $2.75 and $3.10 per share. The midpoint of the revenue guidance, approximately $1.9 billion, sits roughly 3.2% below analyst consensus estimates. Similarly, the earnings midpoint of $2.93 per share trails the $3.31 consensus expectation.
The reversal in outlook occurred rapidly. Just last week, AeroVironment was publicly discussing ongoing negotiations with the Space Force regarding the SCAR program. By Tuesday, company materials indicated that an estimated $1.493 billion in SCAR-linked options previously listed in unfunded backlog are no longer viable. The stock, which had climbed roughly 80% year-to-date before the announcement, fell in after-hours trading following the disclosure.
Management Commentary and Order Backlog
Chief Executive Wahid Nawabi stated that "demand for our unique solutions remains robust," while acknowledging timing challenges within the Space segment. Nawabi emphasized the company's strong order flow, highlighting $2.1 billion in bookings over the first nine months of the fiscal year. Additionally, AeroVironment reported a record $1.1 billion in funded backlog, representing work already secured with appropriated funds.
The SCAR program had been viewed as a critical variable for the stock's performance. Its termination introduces uncertainty that may continue to pressure revenue within the Space unit, even if AeroVironment eventually re-enters the competitive process for related work. Following this forecast revision, market tolerance for additional setbacks appears limited.
Industry Context and Competitive Landscape
AeroVironment operates within a competitive U.S. military drone sector, facing rivals such as private companies Anduril and Shield AI, along with smaller public entity Red Cat Holdings. Industry demand has accelerated, fueled by operational lessons from the conflict in Ukraine and a renewed Pentagon emphasis on acquiring unmanned technologies. In November, the U.S. Army detailed a plan to procure at least one million drones over the next two to three years.
Despite strong industry tailwinds, AeroVironment's margins faced pressure during the quarter. Gross margin contracted to 24%, a sharp decline from 38% in the prior-year period. The company attributed this compression partly to the uncertainty surrounding the SCAR program.
The stock closed Tuesday's regular session down 2.6% at $221.57 ahead of the earnings release. The pre-announcement yearly gain of approximately 80% underscores the significant optimism traders had priced into the broader drone demand narrative, which now faces a reassessment following this corporate-specific setback.
