BlueHalo's Q1 2026 Earnings Call: Contradictions Emerge on Funded Backlog, Revenue Guidance, and Ukraine Funding

The above is the analysis of the conflicting points in this earnings call

Date of Call: September 9, 2025

Financials Results

• Revenue: $454.7M, up 140% YOY as reported; up 18% YOY on a pro forma basis
• EPS: Adjusted EPS $0.32, compared to $0.89 in the prior year
• Gross Margin: 21% (GAAP), compared to 43% in the prior year; 29% adjusted vs 45% in the prior year

Guidance:

• FY26 revenue expected at $1.9B–$2.0B (visibility to midpoint 82%).
• Adjusted EBITDA of $300M–$320M (~16% margin).
• Non-GAAP adjusted EPS of $3.60–$3.70 (updated for refinancing).
• Adjusted gross margin to average low-30s% for FY26; mid-30s% by Q4.
• R&D at 6%–7% of revenue; SG&A at 11%–13% by year-end.
• Ukraine to be 5%–8% of FY26 revenue.
• Expect unbilled receivables to decline significantly next quarter.

Business Commentary:

* Record Financial Performance: - AV reported revenue of nearly $455 million in Q1 FY2026, marking a 140% increase over the prior year on a reported basis and 18% on a pro forma revenue basis. - The growth was driven by continued demand for autonomous systems, new contracts, and the integration of BlueHalo solutions.

• New Contracts and Program Wins:
• The company secured several significant contract awards in the quarter, including a nearly $240 million contract for long-haul space laser communication systems.

• These wins are part of a strategic focus on space communications, directed energy, and other critical market areas.

• Expanded Product and Service Offerings:

• AV's product portfolio expansion includes innovations in Counter-UAS, space communications, and direct energy solutions.

• This diversification is aligned with customer priorities and represents multibillion-dollar market opportunities.

• Strong Financial Guidance:

• AV maintained its fiscal year 2026 revenue guidance between $1.9 billion and $2 billion, despite Cyclical challenges.
• The company's confidence in meeting its financial targets stems from a robust pipeline and strategic alignment with defense priorities.

Sentiment Analysis:

• Management highlighted a “record first quarter” with ~$455M revenue, maintained FY26 guidance of $1.9B–$2.0B and $300M–$320M adjusted EBITDA, cited 82% visibility to the midpoint, and noted strong demand with funded backlog of $1.1B and unfunded backlog of $3.1B. They also pointed to major wins (e.g., ~$240M space laser communications award) and said integration of BlueHalo is ahead of plan.

Q&A:

• Question from Kenneth Herbert (RBC Capital Markets): With 82% visibility, why maintain the $1.9B–$2.0B outlook, and what are the key puts/takes and risks to outperform?
  Response: Guidance held due to early-year timing, budget/CR uncertainty, and contract timing, but management remains on track for ~$2B revenue and ~$300M adjusted EBITDA.

• Question from Anthony Valentini (Goldman Sachs): Is increased competition pressuring Switchblade pricing and margins over time?
  Response: Competition is rising, but AV’s scale, track record, and value should sustain pricing; pressure more likely at the low end, not core Group 2+ categories.

• Question from Louie Dipalma (William Blair & Company): How does AV Halo integrate with third-party hardware, and will it be open to external developers like a platform?
  Response: Halo is hardware-agnostic with open APIs; it integrates third-party systems and emphasizes edge C2, with ongoing heavy software investment.

• Question from Jan-Frans Engelbrecht (Robert W. Baird): Exportability of BlueHalo offerings (e.g., LOCUST, space) and impact of Red Dragon joining the Blue U.S. list?
  Response: Significant international potential—LOCUST and Titan seeing demand; leadership in phased arrays; Blue U.S. listing eases export and procurement.

• Question from Jan-Frans Engelbrecht (Robert W. Baird): How do laser comms fit Golden Dome, and will you address GEO/MEO/LEO?
  Response: Laser comms are critical given RF jamming; AV leads across GEO/MEO/LEO (Panther for LEO/MEO) with mature, producible solutions.

• Question from Jonathan Siegmann (Stifel): Funded backlog appears lower than expected post-BlueHalo—was there a change or drop?
  Response: SCDE had just over $300M funded backlog; large unfunded backlog should convert with substantial Q2 signings potentially approaching $1–$2B.

• Question from Greg Konrad (Jefferies): Of the 20 programs/$20B over 5 years, how much is competitive vs follow-on, and near-term decisions?
  Response: Many are competitive with AV as a top contender; DoD favors proven, scalable vendors and may dual-source to ensure capacity.

• Question from Greg Konrad (Jefferies): How does Golden Dome timing factor into that, and what’s included?
  Response: Golden Dome is largely incremental and not in the 20-program tally; AV/SNC can field a homeland site this calendar year if authorized.

• Question from Andre Madrid (BTIG): LRR decision timing still within 3–6 months?
  Response: Yes; expect a near-term downselect (likely two vendors). AV’s P550 meets Army needs and is ready to scale.

• Question from Andre Madrid (BTIG): International P550 opportunity and first order timing?
  Response: Strong global interest; ramping manufacturing; expects initial orders soon and aims to build a long-term franchise.

• Question from Colin Canfield (Cantor Fitzgerald): Cash flow bridge and normalized working capital?
  Response: Target positive cash flow via reduced unbilled receivables; will balance growth capex needs; working capital shouldn’t rise materially from current levels.

• Question from Trevor Walsh (Citizens JMP Securities): $240M laser terminals—revenue cadence and upside potential?
  Response: Funds final development and low-rate production, then full-rate; customer wants speed; this should be a major multi-year growth driver.

• Question from Austin Moeller (Canaccord Genuity): Does the $68M Launch Effects funding exclude FMS to Ukraine?
  Response: Yes—it's for U.S. Army domestic needs only, not FMS.

• Question from Austin Moeller (Canaccord Genuity): LOCUST energy needs on mobile platforms vs fixed/ship installations?
  Response: Precision targeting reduces power needs; 15–20 kW works on JLTV with scalability, offering lower cost and higher mobility than alternatives.

• Question from Austin Bohlig (Needham & Company): Is OBD funding included in guidance, and is there upside?
  Response: Some is included but not all; upside depends on timing of allocations; year remains strong regardless.

• Question from Austin Bohlig (Needham & Company): Which products are most supported by current funding outlook?
  Response: Broad-based: drones, loitering munitions, Counter-UAS RF (Titan), lasers/Golden Dome, AV Halo software, space laser comms, phased arrays/BADGER.