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On September 9, AeroVironment Inc. (NASDAQ:AVAV) revealed its Q1 FY27 results, posting its highest ever first quarter revenue. Topline figure of $480.5 million marked a 6% year-over-year growth, fueled by a $15.5 million jump in product sales and a $10.3 million expansion of service revenue. The company reported a book-to-bill ratio of 1.4, after total bookings for the quarter came in at $0.7 billion. Let's explore the underlying drivers of AeroVironment's impressive first quarter print.
Autonomous Systems Growth and Backlog Support the Outlook
The first quarter record topline figure reflects on strength across the underlying business lines. The Autonomous Systems (AxS) and the Space, Cyber and Directed Energy (SCDE) segments contributed $346 million and $134.5 million to the total revenue, respectively. The overall gross profit jumped 31% during the quarter to $124.6 million. This pushed gross margin to 26% from 21% posted a year earlier.
Adjusted diluted earnings per share for the first quarter almost doubled, from $0.32 in the same period last year to of $0.59 in the recently concluded quarter. The company also increased its funded backlog, which clocked in at $1.5 billion, compared to $1.2 billion recorded on April 30.
With a strong backlog position and landmark strategic wins, management upheld its full-year guidance, with topline figures estimated to land between $2.125 billion and $2.225 billion. It has forecasted an adjusted EBITDA ranging from $305 million to $325 million, along with diluted EPS between $3.02 and $3.34 on adjusted basis.
SCDE Weakness and Margin Pressures Temper the Quarter
Bears point to the Space, Cyber and Directed Energy segment's $134.5 million revenue, which represented a 21% pullback. This was an outcome of the SCAR contract's termination earlier in the year, as well as winding-down of other government programs. A $3.2 million year-over-year decline in service margin partially offset the improvement in product margin.
Despite year-over-year growth, the overall Q1 gross margins incurred an $18.5 million hit from intangible amortization and related non-cash purchase accounting costs. Operating metrics also took a $43.4 million drag from the same amortization and purchase accounting factors. Non-GAAP adjusted EBITDA came in at $53.4 million compared against $56.6 million in the same period last year. The company is still incurring losses, as Net loss for the first quarter of fiscal 2027 was $(5.1) million, compared to $(67.4) million during the prior year period.
Based on data tracked across 1,000+ hedge funds by Insider Monkey, institutional sentiment toward AeroVironment remains strong, as the number of smart-money managers with long-term exposure in the stock has been going up. A total of 44 hedge funds held positions by the end of Q2 2026, compared to 37 in Q1 2026. Short interest of 7.24% indicates moderate level of pessimism within the investor base.
BlackRock is the largest institutional stakeholder, as per Yahoo Finance database, holding 3.48 million shares as of June 30. This amounts to 6.85% of outstanding shares. Other notable institutional investors include State Street Corporation and Vanguard Capital Management, holding 4.31% and 3.24% of outstanding shares respectively.
Record funded backlog and high book-to-bill ratio offer strong revenue visibility for the upcoming quarters in fiscal 2027, which brings down uncertainty for investors. Ongoing scaling up of volumes across the product business would continue to expand margins, signaling operating leverage and potential margin expansion for the company. Going forward, manufacturing capacity expansion and supply chain efficiencies will remain key strategic priorities for the management.
While we acknowledge the potential of AVAV as an investment, we believe certain AI stocks offer greater upside potential and carry less downside risk. If you're looking for an extremely undervalued AI stock that also stands to benefit significantly from Trump-era tariffs and the onshoring trend, see our free report on the best short-term AI stock.
READ NEXT: 12 Best Industrial Stocks With More Than 50% Upside and 10 Best Stocks Under $10 That Could Triple.
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