AeroVironment Inc. (NASDAQ:AVAV) stock surged more than 34% in Tuesday’s premarket session after the defense technology company reported stronger-than-expected fourth-quarter revenue and earnings, driven by robust demand for its drone and loitering munition systems.

The company has benefited from higher global defense spending since the war in Ukraine began, as governments increased investments in drones, loitering munitions, and counter-drone technologies.

Strong Revenue And Earnings Beat

AeroVironment reported fourth-quarter revenue of $641.62 million, topping analysts’ estimates of $558.81 million.

Organic revenue increased 31% year over year, supported by strong demand for Switchblade loitering munitions, Titan Counter-UAS systems, Red Dragon one-way attack systems and JUMP 20 tactical drones.

The Autonomous Systems segment generated $492 million in revenue during the quarter, accounting for 76% of total company revenue.

Adjusted EBITDA reached a record $140 million, with an adjusted EBITDA margin of 22%, as higher sales volume and improved operating leverage boosted profitability.

Adjusted earnings came in at $1.84 per share, ahead of analysts’ expectations of $1.46 per share.

Record Backlog And Contract Wins

Funded backlog climbed to a record $1.2 billion, while fourth-quarter bookings totaled $572 million, reflecting continued demand across the company’s defense portfolio.

During the quarter, AeroVironment secured a $117 million U.S. Army contract for its P550 Group 2 drone under the Long-Range Reconnaissance program. The award followed an earlier contract worth nearly $15 million for its VAPOR 55 CLE unmanned helicopter.

Free cash flow turned positive at $73 million in the fourth quarter, marking the company’s first positive free cash flow quarter since the first quarter of fiscal 2025. The improvement was supported by stronger operating performance and a more efficient Switchblade product acceptance process.

Outlook Signals Investment-Led Growth

For fiscal 2027, AeroVironment expects revenue of approximately $2.13 billion to $2.23 billion, compared with analysts’ estimates of $2.19 billion. The company forecast adjusted earnings of $3.02 to $3.34 per share, below analysts’ expectations of $3.98 per share.

Management expects about 45% of fiscal 2027 revenue to be generated in the first half of the year and 55% in the second half, reflecting anticipated contract timing.

The company said it is expanding manufacturing capacity across multiple product lines to prepare for higher demand. As a result, AeroVironment expects free cash flow to remain negative in fiscal 2027 as capital spending increases to support production expansion.

AVAV Price Action: AeroVironment shares were up 34.46% at $186.90 during premarket trading on Tuesday, according to Benzinga Pro data.

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