AeroVironment's Army Drone Order Fails to Lift Stock as Profitability Woes Persist

What happened

AeroVironment secured a $186 million U.S. Army task order for Switchblade drones yesterday, part of a previously awarded $990 million IDIQ contract. However, the DeepValue report highlights that such contract headlines are less significant than converting backlog into profitable revenue and repairing margins in the acquired BlueHalo segment. The stock dropped despite this news, reflecting investor skepticism over persistent issues like negative adjusted EBITDA in the SCDE segment and ongoing negative operating cash flow. Recent filings reveal SCDE contributed a $2.3 million adjusted EBITDA loss on $340.3 million revenue over six months, with large intangible amortization structurally depressing GAAP earnings. Thus, the market is prioritizing fundamental execution over award announcements, aligning with the report's WAIT rating.

Implication

The $186 million order adds to funded backlog but fails to mitigate the key investment risks outlined in the DeepValue report, such as SCDE's negative adjusted EBITDA and negative operating cash flow. AeroVironment must demonstrate in the next quarter that SCDE can achieve positive adjusted EBITDA, moving from recent losses to sustainable profitability. Concurrently, operating cash flow needs to improve from the $(168.8) million outflow in the six months ended Nov 1, 2025, as working capital builds continue to strain liquidity. Without these improvements, the company risks further non-GAAP EPS guidance cuts and potential goodwill impairments, which could erode shareholder value. Therefore, maintaining a WAIT stance is prudent until observable operational fixes materialize, as contract awards alone don't justify a bullish shift.

Thesis delta

The new task order reinforces demand for AeroVironment's drone systems but does not shift the investment thesis, which hinges on profitability and cash flow recovery post-BlueHalo acquisition. The core call remains a WAIT until the next quarter shows funded backlog stability above $1.1 billion and SCDE adjusted EBITDA turns positive, with no change to the near-term execution focus.