Hey, all right. Thanks everybody for sticking around for today. Really excited for this fireside chat discussion we're going to get to have here over lunch with management of AeroVironment, Inc., ticker AVAV. Maybe what I wanted to do first is, I think before we jump into all the specifics and nuances of AeroVironment, I think part of why we thought this was really exciting was we're at a really interesting time right now when you think about not only the government, but specifically, U.S. Department of Defense procurement reform, a lot of the disruptions happening in the marketplace. I think we can appreciate what's behind a lot of this.
I think a lot of this has probably caught myself included, a lot of us off guard in terms of the scope and pace at which I think things are changing and they're really trying to disrupt, bring more technology into what's a lot of legacy systems and really, you know, shake things up and turn things on their head and bring in more competition. I think one of the companies that best exemplifies a lot of what we're seeing today and is incredibly well positioned in this new environment is AeroVironment.
I think what I'd like to do is ask Wahid to maybe start with just some discussion around some of what he's seeing at a higher level, not so much company specific, but what's behind a lot of the shift that we're seeing, change in priorities, and what you're sensing in terms of all of your customers within the Pentagon and on Capitol Hill today, how we should think about this as investors.
Sure. So great to be with you. Ken, you know the company and our story and our business really well since the beginning. I think you get an unfair advantage here, which is good. We appreciate that. At a macro level, I think there's a few things that I could summarize. Number one, the U.S. has underinvested in defense for the last decade and a half plus. Sequestration started at the first Obama term, and that's continued over the last several years. We are severely underinvested, number one. Two, our threat level and the adversaries are getting bigger and more formidable and more serious and more dangerous, whether it's China or Russia. The security risks around the world are not getting better. It's gotten worse. We've got conflicts in every single region of the world. We're now, you know, got active conflicts in the Middle East.
Europe, you have the same problem challenge brewing in Asia Pacific. As you know, we're fighting a war on drugs in the southern side of the country, too, in Latin America. There's not a shortage of problems out there. Three other comments I would make is the conflict in Ukraine basically shook up the entire defense industry and defense leaders. If you're a three-star, four-star general in the Pentagon and national security expert, you're going to throw everything that we did in the last 50 years aside and say we have to fight these wars differently because these wars are going to be different. We have to retool our military across all services, both U.S. and our allies. The last thing is there's bipartisan support within Congress for both parties and both houses that we have to invest more in defense.
The other two things that I want to mention that are really important too is that we have a sense of urgency to do it quickly because we don't have a lot of time. We've exhausted a lot of our stockpiles since the Ukraine conflict. The last thing I want to say is the war in Ukraine is not going to be the same as the war in other parts of the world if the U.S. were to fight it. We're not going to be using these first-person view $1,800 drones that fight within a mile or five-mile radius with a fiber optic cable, which is a poor man's version of trying to have a solution. It's going to be that that still may be involved, but it's less than 5% of the market.
The much, much larger part of the market is the other more sophisticated capabilities that are out there. If you were to build a purpose-built company to focus on that, that is focused on unmanned, I truly believe that AV is on top of that list. We have the credentials. I forgot one last point. Because of the sense of urgency, whoever can produce quickly at scale and at the U.S. Department of Defense's level of caliber, of rigor, and performance, then has a very high chance of getting the lion's share of the business. That's exactly the company that we've built over the last decade and a half. I think we're positioned really well. You see a lot of those announcements in our Q1 earnings that we just did a couple of weeks ago. We've actually announced some major awards even since then, last couple of weeks.
Let me ask you this. Why do you get a sense there's been so much, maybe animosity is too strong of a word, but so much pushback against the legacy defense primes? Why such an incentive now to bring more competition in? It seems like almost going out of their way to incentivize companies like yourselves that are disruptive, so to speak. What's behind that?
That was one other key factor that I forgot and missed in my first initial and got caught. There are several reasons. Number one, because of the underinvestment, the industry consolidated heavily over the last 15, 20 years. It has created these seven or six major primes. By definition, when you get that large and you rely on a system that promotes customer-funded R&D and a 10-year development cycle and adoption for 20, 30 years, these very, very large programs, you become an ecosystem that is really difficult to maneuver. That's one change. The second change is the rate of change in technology is much, much faster. What worked in the last two, three decades or 50 years doesn't work in the future because the technology that goes into robotics and drones and software changes every, we see in Ukraine, every three, four, five months, not even a year.
That's one factor. The second factor is the big primes have become very used to the system where if I'm going to develop you this capability, you're going to pay for the development. Then I run the program of record and I'm exclusively your provider for the next 20, 30, 40, 50 years, whatever the number is. That model, the U.S. is sick of it. The U.S. Department of Defense, the Congress, to some extent, doesn't want it anymore. It's very valid. Companies like us who always invest ahead of the program of record requirements, even, that's what we do for a living. We've done it since we've been public. The recipe that we have is now being copied with a plethora of other players. There is lots of private money that's actually trying to copy our recipe. That's the reason why there's an allergy towards these large primes.
I do believe that our country needs at least a couple, if not more than a couple, players like AeroVironment that are able to actually challenge and provide an alternative to the market. The key is going to be who's got the credentials to be able to not only just talk the talk, but actually deliver and deliver in scale and deliver in volume at effective capability at some point. In that perspective, AeroVironment is very unique. I think the number of companies then shrinks dramatically to one or two or three. That's it.
As I sit here and I think a lot of investors struggle with this, I think there's a belief that at the end of the day, if the U.S. wants certain capabilities, there's only a handful of companies, primes, that can produce it at scale, hypersonic weapons and other areas, hypothetically. You're breaking into this. What's the risk that we turn around in two or three years and the government realizes, the Pentagon realizes, okay, we really have no choice but to continue to work with the primes for the vast majority of what we need? Smaller companies like yourself have invested a lot of money and really spent money to spool up, and it's maybe not quite as rewarding as you perhaps thought. I think a lot of companies like yourself are really having to lean into your own internal R&D capital.
Everybody's ramping to add capacity now to support what is expected to be these big orders. What's the risk that obviously this doesn't materialize?
Yeah. I think that risk for a lot of the new players who don't have a customer base, who don't have products that are fielded, who don't have very strong existing franchises, the risk is much, much higher for them because they're now pushing lots and lots of capital. A lot of those are privately funded, you know, VC funded even in some cases. They're really building for a hope of the future and taking a higher risk. I think there will be a lot of disappointments in that area. In our case, that's not the case. We have a lot of shots on goal. We have well over a dozen shots on goal. We don't have to get all of it right. If we even get two to three to four or five, we want to get all of it right. We're working on getting all of it right.
If we just get two or three or four, we're going to be multiple size bigger than our size because each one of those are a billion dollar plus opportunities for us. Number two. Number three, the categories that we're in, it's almost 100% unlikely. I'd say almost because there's always one little chance. There is so much overwhelming evidence and support that we have to go this way. I think there is almost no downside risk in that regard. Lastly, I would say we have invested ahead of the customer's requirements on capability products. In terms of ramping up, we have a very flexible capacity also. We've designed our manufacturing footprints not in one location, in multiple different locations for risk diversification, number one.
Two, we can actually switch lines quite easily within a matter of weeks rather than a year or a month to make one product versus the other. In fact, we've done that several times in our history. We have built a lot of what I call flexibility into our system and our operations in our business to make sure that we're not stepping up way too fast or too early and too heavily in one area versus the other. I firmly believe that the risk profile for us is far, far less because we already have a $2 billion business that's generating $300 million worth of EBITDA, adjusted EBITDA this year based on our guidance. We've got 40,000 plus of our systems installed with 55 to, you know, now 100 different countries. It's not like we're relying on one product, one customer, one program, one widget, one trick.
It's a large portfolio of systems that we have in multiple markets.
Addressing a global demand, not just a U.S. demand.
Absolutely, global demand. This is not, you know, U.S. can delay one year, two years, three years, and many of our allies are, you know, desperate for the same capability. It's franchises that we built around the globe, not just the U.S.
I think one of the, you know, as we look at the sector, one of the knocks often against the industry is you're always fighting the last war, right? What's the risk that we take all these lessons from Ukraine, which involved, you know, a thousand-mile front in a heavily ground-centric conflict? What's the risk that some of that falls apart as you try and apply it to other theaters moving forward? It's always, you know, a trade-off, I know, and a struggle that the Pentagon has. How do you see that playing out?
Yeah, so that's a great point that I think it's a major big lesson that a lot of people miss about Ukraine. The conflict in Ukraine essentially proved a few points. The biggest point is that warfare in the future is different based on the use of drones and robotic systems. It's very agile. Another point is that the decision-making, the way that the Ukrainians are fighting is distributed way closer to the edge of the battlefield. Squads, company, and even smaller force structures are making decisions. They have their own organic air capability with drones, and they have their own lethality that goes beyond visual line of sight. All the rules in the past are broken. Those are all going to stay valid, in my view, in future wars. What's not going to be the conflict for the U.S.
is something in Ukraine, for example, flying an FPV from two miles to a target. We all know that our number one adversary globally is China. The U.S. has really zoomed in and focused on how do we make sure that we have superiority and dominance against that power. We're not going to be fighting within a mile of each other. That conflict is not the same as Ukraine. It's not over land for the most part, most likely either. It's open oceans with thousand-mile plus distances, a very sophisticated adversary with an enormous amount of jamming and RF and SIGINT and EW capabilities. Those are the things that from Ukraine will not copy in another future war that the U.S. may have. Hopefully, we don't have one. The best one is to deter the war.
We have to build this capability in order to actually deter the war or the conflict. I think we're positioned incredibly well. I don't think that these things are going to go out of fashion or style or it's a fad. We invest in these categories because we fundamentally believe in the long-term thematic investment thesis. Loitering munition, here's a perfect example. Everybody has a main, and there's no army that I know of that doesn't have a main battle tank. A main battle tank is basically obsolete against a Switchblade 600. Because a Switchblade 600, you know, two people can set it up right here for 10 minutes and shoot it and take out a main battle tank from 40 kilometers away. There's no weapon system on a main battle tank that can shoot more than three to four kilometers.
I can shoot it that day and night, and I could do it from any angle I want. I can do it with almost an hour of endurance. That playbook is not going to change because of, you know, the future war. That is that all naval battle tanks and armored vehicles have to adapt, and they have to evolve. They have to have defensive and offensive capability against that type of a new weapon system. That is an example of something that is going to be sustained over time. We believed in that category and that thesis from the beginning.
That's a great point. Let me ask you this, though, because I see a lot of parallels in other industries. As you fast forward five or ten years, and I know you've got a really unique background through coming more from the tech industry versus coming from a defense prime, for instance. If you think about this in ten years, who wins? Is it the companies that are making the hardware, or is it the companies that are actually making the software and the AI that empowers all of this? To what extent do the robotics themselves become commoditized? How do you, because we've had a lot of discussions around what makes the Switchblade 600 so successful, is obviously your ability to adapt the software and the navigation tools and everything else as the war in Ukraine has evolved.
How do you think about how you're positioned or how the industry is positioned from your hardware versus software perspective? Ultimately, when you look at some of the private software companies or public software companies that play in AI and in this area are already getting multiples, you could argue, that are significantly higher than what hardware companies like yourself are getting and certainly higher than ever what a defense prime would get. How do you think about that evolution playing out?
You're hitting a lot of the very, very good nerves on these questions, which I like. I'm glad you brought this up because there's a few key nuggets here that we need to decipher a little bit more. Number one, we have been a software-defined hardware provider ever since I've been with the company. I actually came up through the tech world. I've never worked for a defense contractor. I've never been in the military before. I'm an engineer. I'm an electrical engineer background-wise. AV is the only company that I work with that's in the airspace and defense. The reason why we haven't sold, we sold software in the past is because the U.S. Department of Defense did not know how to buy this kind of software. The majority of the systems that we use actually had an enormous amount of software already in it.
Almost half, 40% plus of our engineers today are actually software engineers. We've got every single flavor of software engineers you can think of, whether it's embedded software, apps engineers, Python, GUIs, AI, computer vision, et cetera. The other myth here is that companies that are trying to get more funding love to make a case that they're a software company because it fetches a higher multiple and higher valuation. We're not in this business for overnight success. We're in this business building a long-term sustainable value creation entity, which we've done since we've been public. We are focused on a much longer-term picture. It's very easy for me to just get up and just make claims that we're a software company. I don't want to do that because I don't need to do that. I don't want to do it, and it's not the right thing to do.
If somebody's raising $500 million, they would love to say they're a hardware software company and then go claim also that they're going to build a $1 million square foot manufacturing facility for hardware. That's the only hardware software company I know is building a 1 million square foot manufacturing facility. There is a lot of what I call misinformation that is kind of muddying the waters of what the reality is. Long term, I do believe that software is going to become more and more and more important, which it has. It comes in many different flavors. We are today, for example, in Ukraine, iterating on software, and we're rolling it out to our existing installed base of systems currently, which is in use within Ukraine.
Our Pumas already had several upgrades and things that we're learning about tactics that the Russians are using against the Pumas or the Switchblades, and we're just rolling those innovations and improvements literally on a monthly basis. We have people, you know, boots on the ground. To your question, that type of change and adoption and adaptation is going to be very much a standard. You're going to see things that are going to go in stockpiles, but the government and the military has to have the ability that says if that software improves, we're going to be able to upgrade it. That's why we developed a lot of our systems from ground up to be called, for example, for the U.S. Army, it's called MOSA, Modular Open Systems Architecture, which means every subsystem within a drone system or a Switchblade system or a rocket or a missile is modular.
It's based on an open interface, and the customer can actually swap it out and put a competitor or a similar or different module in. That is going to become more and more and more relevant and required within the U.S. Department of Defense, I believe. The lucky part is because we're so vertically integrated, we're open. We're very open, and we actually are, we've made our systems, and we're winning based on being open system architecture. We have the expertise in those verticals that allows us to actually design those systems at the best in breed and to be able to compete.
Do you get a sense that the Pentagon or the U.S.
Department of Defense, based on everything you've said, is actually in a position now where they've fundamentally shifted how they buy software or how they look at buying systems to break the vendor lock and enable upgrades and enable a separate sort of software purchasing? Have you seen enough sort of nine months into this administration that gives you confidence that these changes will stick?
I have seen some change, yes. I definitely, the biggest change I've seen is the focus and the intensity and the energy that the administration and the department is putting into trying to change. I believe the challenge is going to be that as great as we all think it should be, it's hard for it to become that great because there's a level of interdependency between hardware and software that is almost inseparable. Even modular open systems architecture, you could become somewhat detached from reality. The amount of money you're going to invest in making a small drone modular open systems architecture compliant could become cost prohibitive and actually have to just design a whole new system. There is a breaking point. If it comes to an aircraft carrier, a manned fighter jet or a much larger multimillion dollar system, I could see the value and the benefit.
The smaller the dollar value becomes, I think it becomes more and more attributable and disposable, which to me means that this modular open systems architecture could not be the real solution long term just because it costs less to just replace this, to just kind of like replace a module within it. There's a point in the curve that causes that inflection.
As you're building AeroVironment today, how do you manage the growth and how do you manage avoiding becoming what your lazy legacy competitors represent today? How do you manage that for your business?
You know, that's a great question because I was asked the same question earlier in one of our one-on-one investor meetings at your conference. There's like four or five key things that I worry about the most. The number one is we've got many shots on goal. The likelihood of making many of these shots, if not all of them, is incredibly high and should make sure that we execute effectively in scaling our business to make sure that we capitalize and we don't mess up. We have a great track record on that from our history. As there's one thing that Elon Musk says that I agree with, you know, 10% of the effort is making a prototype. 90% of the effort is actually scaling it and making it into a large scale production. It is so true because I've lived that entire life.
Before AV, I was in a business that we made industrial products, which is now part of Schneider Electric. You had him as a speaker yesterday. I was here. We made 10 million units a year. We're setting up a factory that's fraught with so much, so much problems and challenges and difficulties. When people make that sound like easy, they just don't know what they're talking about, quite honestly. It is a very, very difficult, hard thing to do. That's one. Another area is capital allocation. Where do we invest? We have so many phenomenal technologies and areas of growth that many of these could basically do over the size of our company. How much money do we allocate where? We've got a process. We're doing much better. There's always an area of concern. Third, I would say, is keeping the DNA and the culture of the company.
As we grow, we do not want to be, I mean, we've chosen to be this kind of a nimble, agile, innovative company. That's in the DNA of our company. I am a stickler when it comes to hiring because of that reason, because we want to make sure we preserve that as we grow. If you look at my top four or five issues, honestly, none of it has to do with competitive threats. It's not because we don't take competitors seriously. We do. We've always taken it seriously. I mean, we've competed with Raytheons and Lockheeds for two decades plus, very successfully. We still have a very high share. We have very high win rates, and we have very, very satisfied customers. We've built our franchise based on that kind of a performance.
We don't take it lightly, but it's not my top five concerns because what takes our company from here to point B, the future next three to five years, is really all those four or five issues that are all internal to us rather than external to us.
Kevin, let me maybe pull you in for a minute because you guys could invest a lot of money. You've got a lot of opportunity. You've obviously got quarterly results, shareholder expectations. How do you think about sort of the process for evaluating these opportunities, discipline to these opportunities? You could lean into 20 different opportunities, but obviously that might not be conducive to sort of near-term cash flow and near-term earnings growth. As the Chief Financial Officer, how do you think about the ability to manage all of this and what looks like a really phenomenal opportunity set, but you know, maybe you can't push the thread on everything?
We're just going through our long-term planning process as a combined company, and we're definitely going to face these issues. We do try to do an annual or at least semi-annual process of that allocation of R&D, if you just look at it that way. To me, it's important to have a goal in terms of your EBITDA target that you want to hit, because it helps you rationalize the most important opportunities. I'm sure we have 30 great opportunities, for instance, but there's probably seven or eight that really realistically we can invest in. That process of having to rationalize this about the market opportunity, the time to money, are the things that are going to drive the decisions to head that way, with some, you know, maybe some wild bets here or there.
For the most part, it's really a disciplined approach to the allocation of R&D dollars that we've kind of employed over the last few years. Now it's going to be at a bigger scale, more diverse portfolio. It is going to be a little bit more challenging, but I think we've got the right discipline to do that.
Yeah, you know, one of the knocks, and to Wahid, your point, I've covered the stock for a long time. One of the knocks on the stock coming out of the Gulf Wars and out of the great financial crisis was you lived off recurring revenues associated with an older portfolio of Pumas and Ravens, and you were maybe a little late to invest in the Switchblade or some of the newer technologies, right, that obviously have really taken off. How do you sort of manage that complacency with an installed base and a service revenue and a revenue stream around that with obviously really pushing the new opportunities? Because, you know, it's very easy to get addicted to the legacy products and the revenues associated with that and the services associated with that against obviously where the puck might be in two, three, four, five years from now.
Yeah, so that's a very valid point. There are a few things that are very different than what it was, like let's say 10 years ago or so. The number one was that at that time, we were more susceptible to a portfolio risk because we didn't have 10 shots on goal, and we didn't have the broad portfolio and multiple franchises and different revenue streams and customers, markets, geographies, products, et cetera. That's by far the biggest change from before. The second one was also another reason is that we take capital allocation and investment very seriously because, you know, we're investing our shareholder money. We treat it like our own money. We want to make sure that we invest it rightly. One of the reasons why we delayed some of the investments is because the customer wasn't buying yet.
We didn't see enough of a buying sign signals from the customer. We didn't see the customer converging into some kind of what they really need. They were talking about, I want this, I want that, but the need was not really well, you know, cohesively, you know, agreed upon. Those two factors specifically changed significantly. We were ready in these areas, and we kept investing in early development activities, but we waited until we see the eyes and the customers, you know, that they're really serious about it. Now it's very obvious. It's very obvious. We're very fortunate because I, you know, invested in a new factory for Switchblade before the Ukraine conference. We were already making, you know, Switchblades, and we went from 1,000 a year to multiple thousands a year right away. Historically, we've been very good at scaling and doing that right.
I do agree that one of the things I worry about a lot is, are we investing enough in the areas that I believe it's a fantastic opportunity? This is a generational opportunity. I mean, in my career, in 30 plus years, I've only had this one other time. That was not at AeroVironment before that. I think it's really unique. We've worked really hard to get ourselves in this position. We've worked over a decade and a half building the pieces, and we purpose-built this company knowing that what the future is going to hopefully be like. So far, it seems like we've placed our bets in, you know, if not 100%, at least 80%, 90% of the places are the right places. The areas that, you know, we missed, we have missed is probably mostly timing. Timing is still, you know, playing. That's how we approach it.
I think we feel really good about it. I think we're in a very good spot in that regard, but we can always do better.
I would agree. I don't think you see any risk that the robotics and automation and what we're seeing in terms of adoption of these technologies within the Pentagon and in a national security setting, that train has left the station. There's no rolling back the clock on that. The technology is such that it'll continue to evolve pretty quickly. As you think about that moving forward, what are three or five areas within the technology that make this work where you're really investing now, where you think AVAV will truly be differentiated within this broader sort of autonomy robotics universe?
Yeah, that's another great question. There are three or four areas that I think are very critical. The first one is our investments many years ago and continued investments in our entire software ecosystem. We just announced, as you know, called AV Halo, which is essentially an ecosystem. It's not just one product. It's an entire portfolio of software tools that enable all these robotic systems, whether they're on the ground, in the water, under the water, AVs or non-AVs. We actually integrate with more non-AV products today than we do with AV products under the AV Halo umbrella. That's one area. Within the AV Halo software ecosystem, we have three or four key areas that are even more critical. One is, for example, autonomy. You know, autonomy for drones is very different than autonomy for cars. It's a very different problem. It's a completely different set of technical challenges.
That's one area which we lead. We really are the leader in that space, by far the leader. I'm saying leader not because we have the technology, but we have the track record of our system being actually utilized in the field, effective, better than anybody else's in the entire globe that we know of. Another area is the area of computer vision and neural networks that allows these drones not to find their way somewhere like a human, but also then when they find their way is to find the right object. It's to find the right ATR, automatic target recognition. It's being able to recognize a Chinese small boat from an American boat, a T-72 tank from an Abrams tank. These are a very unique set of computer vision data sets and annotated libraries. The algorithm is not the problem or the challenge.
The problem is getting access to this data and training it the right way to be able to do that. We're ahead of everybody. By the way, our software is running on a lot of our competitor platforms too, unmanned systems. The other area is also the underlying key technologies in terms of C2. It's called command and control. You saw the example the U.S. Marine Corps made a decision very recently. They chose our Kinesis that essentially it's called AV Command that allows you to control multiple robots. If I'm a soldier, I'm going to have three different types of drones, five different kinds of ground robots, and a UUV, whatever else I have. I'm not going to carry seven or ten controllers.
I have to have one controller, a simple user interface that allows me to not only just see what's going on from these assets, but also command them and control them and tell them to do a mission. We bought a company, as you know, called Tomahawk that is the leader in that space. Over the last three years, we've been able to improve that even more. We were chosen as the standard for the U.S. Marine Corps going forward. In fact, we already control a whole bunch of other ground robots and stuff that we don't make in that atmosphere. That is going to continue to happen in the rest of it. Another area, just to round it up, is also the software that goes into battle management. Players in the industry are making this very complicated. It's so confusing. You don't know exactly what this is.
We don't want to play that game. We are not made of that fabric. What we're going to do is continue to launch products and describe exactly what it does and how it fits in the bigger picture. What is AV Command? What is AV? All these pieces we're going to describe and we're going to explain it because besides investors, actually our customers don't even know exactly what these things do from our competitors. There's so much fraud in the market. I believe that we have by far the most, you know, it's sort of a prolific set of software solutions in one area. The second area that we're doing is the platforms that use commonality across multiple software verticals and hardware verticals. We're developing modules that are avionic modules, radios, gimbals, sensors that could go into more than one platform.
That is what gives us also an advantage over all the other competitors because one of our dollars equates to $10 of other people's investing in it. It allows us to stay agile in that regard too. Many of the changes that we made in software for Puma, you know, applied to Switchblade. From Switchblade, it applied to JUMP 20. That's going to be the model that is going to help our military get a bigger bang for their buck.
You've recently completed the largest acquisition in the company's history, BlueHalo. Maybe you can talk a little bit about the strategic rationale behind that. I guess more importantly, a bigger picture, sort of what you see within consolidation in the defense industry is the areas you talk about are very exciting and there's some scarcity to it. How do we think about consolidation or how should we think about consolidation over the next few years?
Yeah, so I think there's two levels of consolidation that's taking place. The big primes, the seven, they're going to continue to try to supplement and complement their portfolio with things that are out there. Most likely, we're one of the targets. You know, it makes a lot of sense for them. You know, we're up for sale every five days a week at least, or most of the weeks. That's not an unattainable question or a problem. The other area is companies like us who are trying to build enough of a mass, not because we want to be big, but because we want to solve our customers' problem better. Our acquisition has been deliberate specifically for the warfighter and for our customers. The BlueHalo, we've known that company since existence. I've known them and the firm as well as the, and you know, actually you guys helped us.
Thank you very much. You were our advisors on this. I think it's one of the best acquisitions we've ever made. It's large, but the design interests and the beliefs of the two shareholders are 100% aligned because it was an all-stock deal. Number one, it's rare for private equity to take all stock. They're a believer in the long-term strategy. If you look at the two solution sets, portfolio-wise and capability-wise, there's almost no overlap. There's a little bit of a technology overlap, which is actually good, but we do not serve in the same domains. They have a space business that we were missing. To be an all-domain unmanned systems prime coupled with AI autonomy, computer vision software, which is our strategy since a decade and a half ago, BlueHalo is like a fit, like a glove in a hand.
It's that critical for us to be in these categories. We did not have an RF counter-unmanned aerial systems solution set. We intentionally stayed away from that because we were too busy building our loitering munition in our small UAS and medium UAS business. They were in directed energy solutions to take the cost of shooting down a $100,000 drone from $2 million to $3 million today with the big primes' missiles to $10 a shot. If you guys come to our open house at the end of this month, two weeks from now, you'll actually hopefully get to see a demo of it. They had the solution for upgrading the entire space departments, the entire U.S. Department of Defense's geosynchronous satellites RF communication with our phased array SCAR. It's a $1.7 billion program that we won against the major primes. That's rolling out.
The first serial number is going to be produced this year. They have half a dozen of these products that were in development phase, getting ready to go to low-rate initial production. We have a lot of expertise on how to transition to production and scale. That was a tremendous benefit for them. Our portfolio now is literally unmatched. You look at our portfolio, not only do we have the solution set that we need, we still have some holes. It's never going to be perfect, but it's unmatched in industry, number one. It's backed by legitimate customers and scale and proven install base and customers that could say, you know, you don't have to like, it's not a prototype. It's in production.
Yeah. Let me ask you, one of the aspects I think that's most exciting about BlueHalo is the counter-unmanned aerial systems marketplace. We tend to think of that today predominantly as something in a war zone or war fighting atmosphere. I can see a scenario in several years where it becomes much more ubiquitous in our daily life around infrastructure and airports and other things. How do you see this playing out? How do you see the opportunity set for AeroVironment, but also just sort of more generally how we should think about this, you know, as we think about impacting our daily lives perhaps over the next several years?
That's another nerve point that you hit that's really important. I felt this way about, for example, Switchblade 10 years ago. I knew that it's not a matter of if, it's a matter of when. It's going to take some incident in the world for people to realize the value of a loitering munition because it's just the way it does it. It's just like remarkable. I think counter-unmanned aerial systems is something that I hope doesn't follow the same pattern. The Ukraine war and the Armenia or Azerbaijan proved the Switchblade and drones. I hope it doesn't take a national social catastrophe of some sort where somebody's flying one or 50 or 20 of these drones from a mile away and causing all kinds of problems for our citizens, right? That's a real threat. That's a real, real threat.
I firmly believe that as adoption of drones and use of drones, both commercial and defense industry, goes up, there's going to be bad actors. They're going to do crazy stuff. We have to protect our commercial sites, airports, nuclear power plants, military bases, the Pentagon. I was in Congress the last two weeks, and almost every senator and congressman I met with said, "When can we put one of your solutions over Capitol Hill and over the Pentagon, over the White House?" These are things that we have to protect. It doesn't cost billions of dollars to protect them. That's why we actually even announced a partnership with Sierra Nevada Corporation, which is another really proven track record of scaling and it's a private company, of course. We did the Golden Dome. The Golden Dome is an initiative within the department to protect these things in a situation.
We believe we have the solutions that are off the shelf today that can do it. I think our counter-unmanned aerial systems solution, both the RF jammers as well as the directed energy system that we have, is going to be just a matter of when. It's already ramping up, but it's five to ten years behind in terms of adoption than a small drone and a loitering munition.
I'd be interested, maybe Kevin, again, from your perspective, you didn't come from the defense prime or the industry as well. You bring a completely different perspective into the CFO role. As you think about sort of balancing again this long-term opportunity with sort of near-term expectations, how do you feel the company's position from a financial standpoint now to really take advantage of these opportunities?
I feel the same way. Wahid, when he said the best opportunities he's had in his career, I feel the same way. I've been with some very, you know, high-growth companies, but we definitely have the opportunity from where we sit today and all of the breadth of our portfolio, the importance of those products to the defense of the U.S. and its allies to double, you know, in the next three or four years. We're aiming for that type of growth. Fortunately, we raised some capital, put us in a good position on our balance sheet to be well positioned for that. We're very EBITDA profitable. We think we're in a great position to capitalize on all these markets, both in the U.S. and internationally. Some great opportunity for growth. We say 15% to 20%, but, you know, in our hearts, we hope much more. In terms of growth opportunity.
Growth opportunity. It's hard in this business. One of the things I've learned being in the defense business now for over five years is that timing is the most difficult thing to predict. It seems as if timing is becoming less of an issue. There's a sense of urgency. I think, I don't know if we touched on it, Dave, but basically they're moving forward these programs of record maybe with two providers versus waiting two or three years to pick one for five years. Let's just move forward with a couple and try them and get that going. Let's get using these products and understanding how they play in our force structure and things like that. I think that trend is in our favor. The trends of some of the initiatives to loosen up regulations for more export of drones and things like that are also in our favor.
A lot of macro factors are very much in our favor. There's nothing better than doing a big deal when the macro trends are in your favor.
Yeah. Secretary Hegseth likes to show off his drones or likes to show off different aspects of the drones. How much time do you spend in the Pentagon, and what are your relationships like there, and is there more you need to be doing there?
That has changed significantly over the last five years as well. If you asked me that question five plus years ago, I would have said, you know, I go there a couple of times a year, three, four times, and most people don't know who we are, you know, and then they know some of our products, but they don't know who we are. Now it's, you know, I'm there very frequent. I spend more than 30%, 40% of my time, you know, we moved our headquarters to Arlington, Virginia, which is right across from the Pentagon. Now, not only do we go there very often and very frequently, there's a lot of requests for us to come in, either testify in different committees or actually provide and ask they want to talk to us and they know we are what we do.
They know that companies like AeroVironment have the wherewithal to actually help the department and help the government and help our nation. That is very important to me because of my personal background. You know, I'm very committed to the mission and, you know, I benefited from the U.S. military as a refugee that came to the U.S. 30 plus years ago. I was born and raised, as you know, in Afghanistan. I escaped Afghanistan because of the Soviet, you know, invasion of Afghanistan. Now I'm making Switchblades to try to take down the communists. Who would have ever predicted that? To me, being able to help and actually, our country needs this. I mean, it's not just not us. Companies like us are a requirement for us to be able to fight the threats that we have.
I believe that the majority of Americans, unfortunately, don't realize how serious this is. How much the things that we enjoy on a daily basis and our kids are really at real risk here. I think we need to just realize that we're fighting over budgets and this and that, and we're talking about a defense budget that's 3% or 4%. We don't realize that everything's at risk. If we don't win this competition, everything's on the table. That's a significant change for the world, not just the United States. I think we got to do what we got to do, and I'm there quite often, you know, and that's why I'm committed to this mission because we got to help.
Maybe just take a step back. You obviously, with your legacy products, had quite a lot of success internationally. What's your view on international markets? I know we've talked a lot about sort of an installed base internationally is very important. What are you seeing there in terms of either support from the government to sell more internationally? It sounds like regulations around international sales have opened up. How much of a focus is that for you now just relative to what you're seeing here, obviously in the United States?
I mean, for us, it's huge. The main reason why it's huge is because historically, every product that we developed for the U.S. Department of Defense has eventually become a global franchise. You know, we did the first one that's probably very notoriously well known as Raven. You know, we've got the largest number of Ravens installed in the U.S., several thousand of them, and internationally, we've got a couple thousand as well, at least. Puma has become the next one, and then the Switchblade is the next product. There's at least two variants of Switchblade that 20 different countries wanted. Over the last 20 years, we've gone from one or two international customers to over 55. The vast, vast majority of that is in our non-lethal small UAS, Ravens and Pumas and Wasps.
There's a huge potential opportunity for us too, and in some years, our international small UAS revenue has been bigger than our domestic. That's how big this franchise is for us. Switchblade is following the same exact trend, probably in a faster time frame. You should expect to see many more countries there, number one. Two, BlueHalo products that we acquired, that was part of our strategy for the synergies and growth, that every one of those customers is going to require counter-unmanned aerial systems solutions. They want lasers. They want space comms and phased arrays. They have satellites in space. Not all of them, but many of them do, our close allies. We can actually export and sell to them that as well. Lastly, there is a strong, strong energy and focus and effort, intensity and effort.
I mean, real, real, it's visible within Congress, as well as within the Pentagon and the White House and the departments, State, Commerce, and the U.S. Department of Defense to take these things, especially the things that we make, quickly give them to our allies, enable the U.S. companies to export more, support that. You saw the announcement just a few days ago that came out about, you know, the regulations and policy around, do you consider a loitering munition and a drone, a missile or not? The administration's position is we don't. It's not the same as, you know, exporting a Tomahawk or a cruise missile. That is going to open up a lot of doors. There's very, very, and guess who's going to benefit the most?
I think we're going to benefit a lot from it, if not the most, because we are ready and we can deliver now. Most of our allies need it now. It's not five years from now. It's this year, next year, the following year, because they're exposed. If they have money to spend and you can deliver, I think you're going to get a lion's share of the business, which we have done in the past.
Let me just maybe to bring it home. How do we think about this business in five years? If we're sitting up here in five years, how does AVAV look and what's different? What's your aspiration as you think about this business, either from a financial metrics standpoint, size metrics, just how do you, what's your five-year plan look like for the business from an aspirational standpoint?
It is in our future state definition, very simple, an all-domain unmanned robotics system solution provider with autonomy and AI software. It's basically building the next-gen prime that the U.S. needs with the qualities and attributes and adjectives that our customers don't like about our current primes. That's agile, innovative, invests in R&D, defense tech prime is basically what we say we are. We've proven that formula. We're on that trajectory. I think our shareholders have done well in the last decade or so. I've been here for 15 years. I can genuinely and honestly tell you with a lot of confidence that I look at our cards and I look at the market. We've never had better odds of success. We've never had better cards.
A, B, I've never felt so good about our cards against our competitors also, because yeah, we have got competitors and there are going to be more players in the market. If the market is going to become several billions of dollars, tens of billions of dollars, there's going to be more companies and there's going to be room for others to also be successful. It is hard to then bet against AV. If you look at the odds, I think it's going to be really hard to, and the downside is not much at all. Look at the kind of growth that we have. We've got franchises that are generating revenue, as Kevin McDonnell said earlier, that has a large installed base, loyal customer base. They're in the fabric of militaries around the world. That ain't going to change tomorrow.
It's going to be more of it, but it ain't going to change. All that provides opportunity for sustainment upgrades, so there's a lot of good things that are going our way. Knock on wood.
I would add that kind of the vision would be a very diverse portfolio of products and capabilities, multiple product categories that are probably over $1 billion, but a lot of $200 million and $300 million product categories that are getting us to that over double where we're at today, something like that. Very diverse portfolio. We're not relying on one thing or that, you know, to gain success.
Yeah, if you ask me which one is going to be the one, there's like 10 candidates. We're working on all 10 plus, but we don't have to get them all right to get to what Kevin just described. That's fundamental to our strategy. We're working on every single one, but I think the vast majority of them have the likelihood of converting into that kind of a franchise and a portfolio.
We really appreciate the time. Kevin, Wahid, it's great to have you with us here. Appreciate everybody sticking around. Lunch, hope, obviously really appreciate the support for RBC and hope everybody has a great conference. Thank you very much for the words.
Thank you.