Talking Next-Gen Defense With AeroVironment's CEO

In this podcast, Motley Fool Chief Investment Officer Andy Cross chats with Aerovironment CEO Wahid Nawabi about:

• The multibillion-dollar BlueHalo merger expanding capabilities across air, ground, space, and cyber.
• Fast innovation: 18-month product cycles vs. a 10-year industry standard.
• Record growth: a $764 million backlog across 55 international customers.
• Vertical integration: In-house design enabling optimized performance at lower costs.

To catch full episodes of all The Motley Fool's free podcasts, check out our podcast center. When you're ready to invest, check out this top 10 list of stocks to buy.

Where to invest $1,000 right now? Our analyst team just revealed what they believe are the 10 best stocks to buy right now. Learn More »

A full transcript is below.

Should you invest $1,000 in AeroVironment right now?

Before you buy stock in AeroVironment, consider this:

The Motley Fool Stock Advisor analyst team just identified what they believe are the 10 best stocks for investors to buy now… and AeroVironment wasn’t one of them. The 10 stocks that made the cut could produce monster returns in the coming years.

Consider when Netflix made this list on December 17, 2004... if you invested $1,000 at the time of our recommendation, you’d have $699,558!* Or when Nvidia made this list on April 15, 2005... if you invested $1,000 at the time of our recommendation, you’d have $976,677!*

Now, it’s worth noting Stock Advisor’s total average return is 1,060% — a market-crushing outperformance compared to 180% for the S&P 500. Don’t miss out on the latest top 10 list, available when you join Stock Advisor.

See the 10 stocks »

*Stock Advisor returns as of July 7, 2025

This podcast was recorded on June 30, 2025.

Andy Cross: Hi, everyone. I'm Andy Cross with The Motley Fool. It's a holiday week here, so we are bringing one of my favorite recent CEO conversations to Motley Fool Money. I had the opportunity to talk with AeroVironment CEO Wahid Nawabi. He shared his insights into the company's impressive AI driven product suite and its game changing acquisition of BlueHalo. AeroVironment stock is down 11% today after it announced a planned capital raise, but it's up an impressive 85% year to date. We hope you enjoy my conversation with Wahid Nawabi.

Hello, Fools, and welcome to another Motley Fool CEO conversation. I'm Andy Cross. Really pleased and honored to have today joined here by Wahid Nawabi the CEO of AeroVironment, a 3.6 billion dollar market cap, designer, maker of intelligent multi domain drone and robotic systems. Wahid welcome to The Motley Fool, so great to have you here.

Wahid Nawabi: Andy, great to be with you. Thank you for having me.

Andy Cross: Super exciting time to be talking about AeroVironment and capabilities, but let's just set the stage. In your own words, give an overview of your company, its purpose, its products, and the markets it serves.

Wahid Nawabi: Sure. We are one of the original what's referred to these days next gen defense tech primes. We've been doing this for literally 50 plus years. But our recipe is very unique, has been unique, and we're the leader in the spaces that we do. So we believe many years and almost a couple decades ago, that unmanned or uncrowded systems on the edge of the battlefield, whether it's ground robots, air robots like drones, loading ammunitions, and counter UIS systems, counter drones. These systems, if they're all integrated with autonomy and AI and computer vision, those are the three enabling interoperability technologies. They can work together as a system. They can deliver an enormous amount of value for the national security interests of the United States and our allies. AeroVironment is one of the very few companies that has done that for decades. We have tens of thousands of systems operating around the world, primarily small unmanned systems, drones and loading munitions. We also export those things to 55 different allies of the United States, around the world and we have been very well known in the military for or drones and loading munitions in Ukraine conflict. But even beyond that, before that, in the conflicts of Afghanistan, the Middle East, Iraq, we were very popular in those times.

Essentially, we were the ones who invented these categories for the US military, taught them how to use it and operationalize it within their force structure, and essentially made very successful businesses and franchise, which now is referred to as defense tech. But we are the original defense tech prime, and we believe we're the leader in that space. And I think their future is tremendous for us.

Andy Cross: Wahid we're talking uncrewed systems, drone systems, the loitering systems, which are the ammunition systems like the switchblade, I believe. Then the McCready Works, which is a little bit of like a skunkworks inside AeroVironment, however, with a very specific purpose when they're designing systems. Give us a scope of the size of products you're talking about. We're talking about drones that are as small as a person and as big as a car?

Wahid Nawabi: Great question. All the above and in between. Yes, we're organized in three business segments, our uncrowded System segment, our Loading ammunition segment, and then our Maquii work segments precisely with how you described it. It's our incubator for specific types of technologies and innovation that could become the next disruptive capability in the world. In terms of the drones, first of all, the smallest drone we've made is probably the size of a hummingbird. It was actually under cover of Time magazine. It was called the hummingbird. It's literally, it's a drone that is looks and flies just like a hummingbird. It's got sensors on it that he can go through a window and survey a room, or it's a phenomenal design. In fact, the darpa hard part of that was it has to mimic the flight of a hummingbird with its wings flapping, and that's exactly what it does. The largest drone that we make we've made or designed is the wingspan from tip to tip of the wing is about 262 feet, which is a few feet longer than an Airbus A 380 double decker aircraft.

It's 100% solar power, and it takes off from a gravel runway, not even paved and gets up to the stratosphere, which is about 65,000 feet up the air, essentially, two times higher than general airliners. That's called Mr space, and it operates there for months at a time. It's literally at a stratospheric satellite, essentially and so those are the sizes of the drones, and we make everything in between of those. The most common ones that we've made for the military are the hand launch drones, like the ravens and the Puma and Jump 20. Jump 20 is not hand launched. I'm sorry. Those Ravens and Pumas are hand launched and those are the ones for smaller forces, squads, company size, and even brigade size forces that they can have their own organic ISR, intelligence, surveillance, reconnaissance capabilities within their force structure. That was a shift.

Andy Cross: Just very quickly, just for some context in that, so a military force, a squad would be out in the field, and they would have a person who would launch the drone by hand, and would they have another person who's involved in directing, steering it, or is that all done? How how is that accomplished?

Wahid Nawabi: Great question and both or both. Essentially, think of it this way. For century plus in the military, ever since aviation, if you were squad within the US Army and you needed to get some intelligence surveillance reconnaissance information about your surroundings, you have to call in a airplane, a manned airplane. You had to call an F16 or Apache or whatever airplane they had, manned airplane. Essentially that resource, multimillion dollar resource would be probably tied up supporting dozens if not hundreds of different squads on the battlefield. What we developed was a small drone that you could put in a backpack. That you can hand launch called Raven. Essentially one person can hand launch it and within a matter of minutes, be able to fly for an hour and a half, up to 10, 15 kilometers around yourself and get your organic ISR capability, intelligence surveillance, reconnaissance. It takes usually one or two people, most of the time, two people to operate these things. One person to launch it, and then once you launch, you have a ground control station, literally a little display with controllers on it, just like a video game and you could see what's going on around you at day and night. Essentially, you see it better than most likely manned airplane, because you could fly low. You're very quiet, you're mostly electrically powered, and they are really hard to detect with radios and jammers and sensors. Also, they're very difficult to hear because they're tiny. They look like a little bird in the sky, and especially if it's dark, you can't see it.

Andy Cross: Those are all battery powered?

Wahid Nawabi: Mostly, 90% of them are, yes.

Andy Cross: Most of those are surveillance. They're mostly used for surveillance?

Wahid Nawabi: Yeah, so most of the UXS the uncouth systems are considered non lethal, but they're primarily for surveillance, intelligence, surveillance and reconnaissance. But there are versions of our Jump 20, for example, a Group 3 UIS, that is they can carry kinetic payloads. Besides being just a surveillance drone, they can also be offensively used if you want to.

Andy Cross: Just very quickly, jump 20 is not a hand launched. That's not a hand launched one. That's a much bigger one and the newer model, I think is modular, so you can actually add in, I believe, a weapon like weapons. You can add in surveillance. You can add things to it in the field based on what the fleet needs, is that right?

Wahid Nawabi: Correct. That's right. The US military many years ago, came up with this what they call them the categorization of different group groups based on how long you can fly, how high can you fly, and how much payload can you carry? They call them Group 1, 2, 3, 4, 5 and 6. UAS umanned aircraft sunmanned The smallest group in terms of payload, endurance and size is called Group 1, and then Group 2, and then Group 3 and Group 4 and when you get to the stratospheric Satellite 1 that I described the Habs platform, that's a Group six capability. Now, most of the ones that we make are Group 1, 2 and 3. Jump 20 is a Group 3 UAS, which means it's roughly about 25 pounds of payload. A maximum takeoff weight of about 60, 70 pounds, maybe a little more than that. That's a bigger airplane. It's not hand launched because a human cannot launch it with a hand. But Ravens and Pumas and wasps, those are all hand launched small drones that weigh less than five, 10 pounds, essentially, in terms of their total weight.

Andy Cross: The jump can launch vertically, is that correct?

Wahid Nawabi: That is correct.

Andy Cross: Which gives it an advantage in the field, especially from ships.

Wahid Nawabi: That's right. Over the last few decades, AV has brought an enormous amount of innovation into this space. Initially, the drones were hand launched, and it's called a deep Star landing. When the drone comes into land, comes back because you retrieve these, they actually come back and they shut down the engine, and then they just crash on the ground the last 20, 30 feet. That's how every Raven in Puma actually lands. It's actually a surprising moment for a war fighter. If you're a soldier, you see this thing crash land and basically break into pieces, it's designed to do that. It's because it desipates the energy, so it actually survives thousands of landings like that on hard surfaces. Jump 20 is a much bigger airplane, and historically, those airplanes have required a runway. When you are now runway dependent, like a Scan eagle is, for example, you have to have a runway close by to be able to take off from and land at. That limits your operational use A, B, it's way more expensive. C, it also actually makes it more dangerous for the forces because you may not have a one way close by or then you become a target. What we did is we developed this drone, the jump 20, hence the name jump that basically has a vertical takeoff kit that it takes off like a helicopter or like a quad copter. Then it starts to get airborne and once it becomes airborne, it flies like a ping squid.

It's called a hybrid vital vertical takeoff and landing airplane. What it does, it allows this airplane to have the best of both worlds. It has the ability to fly as a fixed wing airplane, which gives you endurance. It gives you more payload capacity, can go longer, can go faster, but it also gives you the ability to be runway independent and operate with much less number of people. The total cost of ownership of this system is dramatically lower than a fixed wing airplane that relies on a runway.

Andy Cross: That's really the unmanned drone side of the business. Let's talk a little bit about the loitering systems, and then I want to get into some of the exciting growth opportunities tied to a significant acquisition that you're making. The loitering system, which is the switchblade which are hand launched, essentially, munitions systems that were very popular in the fight with Ukraine was a very significant growth driver for you. That's tapering off now, and actually, you're not really expecting much growth from Ukraine going forward and so quickly about the loitering systems, and why is that important to have as part of your suite of products for Air environment?

Wahid Nawabi: Great question, Andy. Let me elaborate a little bit because the context of this means a lot, and it explains a lot to your viewers if you ask me in my view. When we first invented and gave the small drones to the small war fighters like squads in Afghanistan, they realized, Oh, my God, I found my adversary and I see they're over the other side of the mountain. They're five miles away. I now need a weapon system to take that target out and prosecute the target. That's when the idea of a kamikaze drone or switchblade was born called the loitering ammunition. What is that? It's a tube launch AV, same size as a small raven, maybe a little smaller and the larger version is much bigger size of a javelin weapon system. You basically take out a tube out of your backpack. Three of them fits in a rub sack, three switchblade, 300 and the whole thing weighs a total of 25 pounds, so one soldier can carry three of them at a time in a rut sack. You put it down on the ground within two minutes, you can push a button and out of the tube comes a UAV, opens up its wings and starts flying. Now you find your target, and you've got a half hour to fly around up to 20, 30 kilometers to find your target. When you find the target, and then you say, hit it, and you designate the target and essentially, it goes and it actually prosecutes the target. It flies directly into the target, stationary or moving, and there's a lot of technology that goes into that. I'm not going to get into the detail. That business was a disruptive capability for the war fighter because they were able to now not only have organic ISR capability, they also had organic precision lethality.

From distances that was not visually capability to see the target and that was a game changer. Now Ukraine has become the poster child because it's been so much public awareness and videos of this thing. Now the larger version of that carries the same warhead as a javelin anti-tank weapon, but it goes up to 100 kilometers away, and it could fly for up to an hour. You can literally take out a moving tank at 35, 40 miles an hour down the road and at the moving speeds. You could come at it from different angles. It has dramatically changed the landscape in the war in Ukraine. When the conflict in Ukraine started, our Switchblade and our small Pumas were the first set of capabilities that the US military gave to the Ukrainians at the beginning. Since then it's been a phenomenal success, and US DOD has given it more and more. What you're referring to is that we knew that this war eventually going to end. About a year and a half ago, we intentionally said, we need to pivot away from the demand in Ukraine. Now we have a robust pipeline of billions of dollars worth of opportunities outside of Ukraine that we're looking at for the next 10 years.

Andy Cross: Let's talk a little bit about that because that's where it gets a little bit even more exciting is you announced a big acquisition with BlueHalo, I think another Virginia based company, very much like AeroVironment is, that pushes AeroVironment in a whole new direction. As I understand, there's very little overlap with the product suite. But BlueHalo specializes in things like providing for space technologies, counter drone surveillance and counter UAS capabilities, electronic warfare and cyber. Talk a little bit about what you're expecting from the BlueHalo acquisition and why you decided to push in that direction.

Wahid Nawabi: Sure. We're incredibly excited about this because in my 15 years of career at AV, this is a historic moment. It is a game changing transaction for us and for our customers and most likely for our shareholders. Here's why I say that. Our strategy has been that if you take these unmanned systems that are on different domains, ground, air, subsea, on the surface of the water, and in the stratosphere, and in the space and you connect these unmanned systems, you integrate them with AI and autonomy, and you put computer vision and autonomy together with them, and you operate it at the edge of the battlefield. You are delivering a set of capabilities to the US military that is basically changing warfare since the invention of machine gun. Essentially, I actually saw a speaker the other day, expert in this area, who said, Switchblade is the new machine gun of the 20th first century. Literally his entire presentation was on this. That's very true. This is our strategy. This has been our strategy, and this has been the strategy for BlueHalo as well. The beauty of this is that the domains or the areas that we focused on, they did not, and the areas that they focused on, we did not. This brings the best of both worlds together to build a company that has the domains that really all matter, space, cyber, ground, air, stratosphere, subsea, and counter UAS and intelligence community all together. That's why there's literally no overlap between our businesses and an enormous amount of synergy. We can go and offer to our customers end to end multi domain solution that's all based on unmanned capabilities and the types of trends and threats that we see to compete with our adversaries like China and everyone else.

Andy Cross: Wahid, how do you see the integration going? Because different products, same customers, maybe a little bit different customers, they had Space Force and the Space-Eye, you all are not really the Space-Eye, but talk about how you expect the integration to go, not so much the numbers, which I always love numbers, but just more about the sales process, the R&D process. How do you expect that all all to unfold over the next year and a half?

Wahid Nawabi: Sure, so it's going to take us a couple of years to get all the integration completed in this because these are large equal sized businesses, and there's very little over up, but there's a lot of opportunity for integration and synergy. The synergies, this is all about growth. This acquisition is all about growth. Essentially because there's very little overlap in terms of our products in our customers, it allows us to benefit from each other's cross selling and cross capabilities. The areas that I see, so integration so far is going fantastically well. we're ahead of our schedule in many ways are on track or ahead of our schedule. We've got the first was to get a Hart-Scott-Rodino, HSR approval. We got that for the MD Trust. We got the SEC approval, which was unprecedented in about a week or so time frame. There's one last hurdle left, which is to get the approval from our shareholders. There's a shareholder vote that is due at the end of April, May 1st. Technically, we're about to complete all those on track and on schedule, hopefully. Then beyond that, there's a few other small nick knacks that are going to flow, and we expect this deal to close in the second quarter of this calendar year. The integration work has already started. We're working together to build our plans for the future, and we're doing extremely well, but it's going to take us years to basically realize the full value of this deal. The reason is because we also have to work with our customers to help them with their capabilities and how they can benefit from the integration of these two entities together.

Andy Cross: Wahid just talk a little bit about the customers because it's obviously a lot of defense US defense, international defense spending, similar for BlueHalo maybe a little bit different but similar as well too. One of the things I think that allows you to be able to develop and innovate in something like Switchblade is just those deep relationships you have with your customers. I think like ingrained with the customers from a development perspective, talk a little bit about the research and develop initiatives that you have inside AeroVironment, why that is or how you consider that a competitive strength and a uniqueness, a unique proposition.

Wahid Nawabi: Absolutely. The characteristics of a next gen defense tech prime, which we are the example of, some of them are as follows. Number 1, we invest a lot in R&D as a percentage of revenue not most, all the primes. Our average R&D spend as a percentage of revenue is similar to high end tech company, 11% 12% of revenue on R&D which is unheard of. Companies like Lockheed and Northrop, their R&D spend at best is 4%, maybe not even. We don't wait for the customer to fund us to develop the product. We've never done that in our history, actually. Number 1, number 2, agility. We are incredibly fast. Our development cycle, the latest product that we just developed for our UAS platform called P 550, we just introduced from sitting down with the US Army on LRR requirements and understanding the requirements until we actually had the prototype supply, it was less than nine months. We're going to actually get it to manufacturing readiness level where we can produce in high volume in less than 18 months total. Historically, in the US DOD, a program takes 10 years. We are shrinking that to less than two years. That is the genetic DNA of AeroVironment. The third thing, we're incredibly intimate with our customers. We spend a lot of time iterating the solution with the customer upfront, which allows us to then come up with the solution and capability that the war fighter absolutely loves and it's ideal for their needs. Those three things agility, innovation, and customer intimacy is something that's very unique to our culture and BlueHalo as well. The reason why this is advantage for us is because we have international customers, though we do this really well. They don't. They are incredibly close with Air Force and Space Force and the intel community. We're not. We're very strong with Army and SOCOM. These are all what I call even complimentary besides products and markets.

Andy Cross: Wahid talk about, you mentioned some of the competitors. I'm just interested. Again, much smaller than the Boeing, why doesn't someone like Boeing or Lockheed just try to do what you're doing and compete directly with you? You mentioned the uniqueness DNA of AeroVironment, but I just want to understand maybe a little bit more about how have you been to really not corner this part of the market, but really be the leader when it comes to this part of the market for the DOD.

Wahid Nawabi: Andy, you asked a really great question, and I believe this question that you're asking is a multi-billion if not trillion dollar question. Because why can't the big guys copy what we're doing? The answer is complicated to some extent, but it's pretty simple as well. Number 1, we have been competing with the large primes since inception. There's not a day that goes by that we don't compete with the big primes on a regular basis. Number 1, and they have not been successful to break into our recipe and copy our recipe. It's not that easy for them. Number 1, the inertia within these large companies is we wait for the customer to pay for it, and then we would nickel and dime the customer more and more in 10 different ways, and we're going to move at a pace that it's even slower than the customer. All those things are antithetical to our strategy and our DNA. We are impatient. We do not like two years of the development cycle, even. Our process is incredibly this entrepreneur model. If they even actually tried to copy our model, it is very dilutive to their strategy, into their existing model. There's an inertia but there's also a culture. It also is what I call the way the word design, the people we hire. Our biggest competitive hirings are with the Googles and Apples of the world. It's not necessarily with Northrop and Lockheed. We respect them. They're great companies. Don't get me wrong. They've done a lot of things that they do really well, but that's not our ballgame. Our ballgame is that fast iterative cycle, highly innovative, disruptive, and we also are very vertically integrated. If you look at most of our systems, we design almost every single subsystem that comes into our solution.

Our technology stack is very highly vertically integrated and stacked. What that does allows us to make a system that is highly optimized for the war fighter. The analogy that I use is the following, just to illustrate that point. When you buy a Boeing airplane, the engine is made by someone else. The avionics is someone else, the landing gear is someone else, the air conditioning is someone else, and you a system integrator and you make air structures, maybe. Even the air structure is not made by them. Nothing wrong with it. That's the model. I'm not trying to poo poo it. It's just the way it is. That's what it is. It's the facts. Now, in our case, we design our air structure, we design our avionics, we design our autopilot, we design our own gimbles, we design our electronic computer onboard, we designed a ground control station, we designed the air structures, et cetera. The argument that I give to a lot of people analogy is this, if you were to build the best car, you use the best brakes, the best tires, the best engine, the best transmission, you're going to have the worst performing car, not the best performing car.

Andy Cross: That's right.

Wahid Nawabi: You optimize by making a Toyota Camry or a Mercedes Benz or a BMW by optimizing all the subsystems and that is our strategy. That's why we are vertically integrated. That gives us an advantage in competition as well with our competitors, and that's why we're so successful in our.

Andy Cross: It's almost like you're like a Ferrari at scale for primes to DOD.

Wahid Nawabi: It's exactly right. Our model is, how do you deliver the performance of a Ferrari at the affordability of a Camry or in a fork Taurus? That's essentially what we use. We standardize a lot of things, and we design and manufacture and scale, but we do it in such a way that is really affordable, cost effective, and scalable.

Andy Cross: We'll wrap up here in the next few minutes here, Wahid. This has been such a pleasure. Thank you. I want to talk a little bit about just the market environment that you're seeing right now. Obviously, so much talk about what's going on in Washington, DC down the road here from us. With your key customers being tied to the federal government and the DOD, how do you maintain that relationship that allows you the healthy balance between pricing and service? Is there a recurring revenue model stream behind your products, or is it once and done, and just the brand speaks for itself, and then they come back and order more. A little bit about just where you're seeing from the marketplace and how that is starting to impact the way that you're thinking about pricing and also delivering services to the government.

Wahid Nawabi: Sure. Our business is very unique in some ways, in that regard, because a lot of our development activities and software. We do a lot of software. But we don't sell software by itself as a big individual line item. Although we do sell some software, but a lot of our hardware is differentiated and value added by the software capability within it. We call it a software enhanced solution set.

Our revenue stream is both hardware and services, services of engineering services, and there's some software sales, but not a lot of it. There is absolutely a long tail with every sale. When we actually sell to an army or to a navy or to special forces, a small UAS system, those systems are like airplanes that last five, 10 years, and they're used on a regular basis, so there is a long tail that goes around. Most of the time the customers break them. They need upgrades, so there is an enormous amount of value in that regard. I can tell you that from my 15 years in the company, we've had tremendous years of success. The company has never been positioned better than we are positioned today in terms of their opportunities in the future. Phenomenal position. We exited our third quarter, which we just had our earnings call with $764 million with a backlog. That is a large increase in a record backlog than ever before in the history of the company. We're going to have a record year. We're going to have the record quarter. We have a record backlog going into the following year, and we are sitting in a market that is essentially just everybody is talking about the type of capabilities that we primarily are in business for. It's a great position.

Andy Cross: Is there a market outside of the DOD and the government's? Talk to us about how you think about that.

Wahid Nawabi: Absolutely. Today, there Is markets for Department of Interior. It's for Homeland Security, for the border, for the Golden Dome. As I said, export up to 55 different countries around the world. These are all US allies. As they increase their spending with defense budgets going up, I believe that we're going to be one of the primary beneficiaries of those because they're spending more money in areas that we provide capability. Why is that? Number 1, it's the capability that has made Ukraine successful against the superpower, A. B, it is far more affordable. We are a much more affordable capability than anywhere else. Let me give you a perfect example. Today, there Is over 1,500 Pumas flying in Ukraine on a daily basis, 7/24. The cost of that 1,500 Pumas is less than a couple of F-16s, maybe one F-16. You look, we're like 70, 80% of the Ukraine's Air Force capability. You can't get that with one F-16. The economic equation is much in our favor.

Andy Cross: I think the latest call, I talked about one of the Switchblade 600. Basically, for every one launched, on average, it's about $13 million of hardware destroyed in Ukraine.

Wahid Nawabi: That's right. In the last few months, they've used about $36 million worth of Switchblade 600 and they've destroyed. This is according to Ukrainian military specific data point, close to three billion dollars worth of Russian strategic assets, and these are not little assets. These are strategic assets that takes years to replace. They consider Switchblade not a tactical weapon, but a strategic weapon. Why? It's because of these dynamics.

Andy Cross: Do you think that if you play it forward a few years from now, well, the international is obviously a big part tied to the war in Ukraine. But will that be the big growth driver for air environment plus BlueHalo going forward?

Wahid Nawabi: Actually, we have growth in all of our segments, and I believe that the BlueHalo is going to accelerate our growth and it's going to give us more opportunities to grow and allows us to position ourselves better for our customers long-term needs, Number 1. But our growth is in every category. Domestically, we have tremendous online programs that are coming our way, so we see tremendous growth in our Switchblade loading munition. MacCready Works has many new concepts that we have not talked about some of them publicly, but some of them we have. We're going to see some exciting news in the next month or two or three from that, as well. Then, obviously, internationally, the growing customers that we have, and all these customers are going increasing their spending quite a bit. Guess where they're going to be spending a lot of their money? The concentration of those investments are going in the categories that we are the leader in the world. Like I said, the future for AV has never been brighter. I genuinely mean that because I truly feel we're positioning incredibly well. We've positioned ourselves really well. We have the demonstrated track record, and we're one of the very few companies who actually has a track record of delivering to the US DOD at the scale that the US DOD is looking for.

Andy Cross: Wahid, let's talk a little bit about manufacturing. Of course, tariffs all in the news. I know you have a big investment going on out in Utah, one of your plants, but just when you're thinking about the landscape of increasing costs and where you're manufacturing things, give us your lay of the land on what you're thinking as a CEO of a company like you said, is building the technology stack internally and also on the manufacturing side, as well, too.

Wahid Nawabi: Sure. We're very focused from over a decade, two decades ago, to build the next generation defense tech prime that the US DOD and the world, our allies need and deserve. That's really fundamentally been our strategy and vision long-term. We are the powerhouse when it comes to manufacturing for the defense industries, especially in drones and loading ammunitions. There is nobody that I know of that has anywhere close to our scale for defense production capability when it comes to our systems. For example, we've already delivered over 60,000 of these systems worldwide. They've operating in any every continent, every weather systems you can imagine. Production cost and tariffs. We do not see a problem with that in our business, primarily because A, all of our suppliers are domestic. We have some component-level suppliers that are not domestic like resistors and capacitors, which we're exposed to and everywhere. But that's a very small percentage of the total cost of our bill of materials on our products. We don't expect that to be a problem, Number 1. Number 1, we have the ability to also adjust our price with our customers because we sell a lot of our stuff as a commercial. Commercial item means that we dictate, we set the price, but obviously we do it very rationally and very reasonably, so we don't cause problems, and we've been very successful at it.

In that regard, we're good and our manufacturing for drones and loading ammunitions all in US. We intentionally decided many years ago that these things are going to be a problem for the rest of the industry, and we do not want to be like the rest of the industry. We were ahead of the curve even then, and that's why we announced a new manufacturing facility that gives us another 5x capacity increase for loading munitions but it's very exciting because we're planning beyond next year. We're planning for the next five plus years because we see so many demand coming our way that is very exciting.

Andy Cross: I'm almost surprised we've gone this far without really talking about AI. I don't think that's happened in any of your I'm sure conversations with any investor. You mentioned it at the very top, and let's just circle back to that. I know artificial intelligence runs throughout the entire products. We talk about some of your investments you're making and why that's so important for your environment, and for your customers, really.

Wahid Nawabi: Andy, I'm glad you brought this up because there's a lot of hype and talk these days and companies are just saying the word AI and autonomy in their name. They become very popular. We recognize this 10 plus years ago. There is a level of autonomy in our systems that has been actually integrated system in our drones since inception. For example, Raven, 20 years ago. There is some level of autonomy in Raven even then, because the operator, the pilot on the ground doesn't fly it. It actually commands it to go from point A to point B to point C and loiter, wait here, keep an eye on this target. There's a level of autonomy and AI that's already built in there. But we are way deeper than that. We believe all of these systems are going to work almost fully autonomously with Neumann in the loop eventually. In fact, a lot of that is in play today. We've been investing very heavily in that over the last decade and we offer solutions today. In fact, the ability for Switchblade to be able to lock on a target and finish the target successfully with little collateral damage is part of that algorithm and part of that software capability. We're a very large player in this space, and we continue to invest in it, and I believe long-term, it's going to be very big. The good part is BlueHalo recognize the same thing, and they've been investing in this area as well. And so the combination of the two is going to be very unique and unmassed industry. We're really excited about that.

Andy Cross: As we wrap up here, Wahid, thank you again for your time. Talk a little bit about the balance between growth and profits as you continue to evolve air environment from a continued IP perspective with the products for your clients. There is a balance between investing in factories in Utah and figuring out how to manage the most efficient cost structure you can to continue to focus on your profit picture. How do you handle that growth?

Wahid Nawabi: Sure. It is not an easy balance because the appetite and the desire and the demand for investment is very large because we're growing and there is a lot of opportunity to go even faster. At the same time, we've always remained very disciplined ever since we've been public, that we're going to continue to have profitable growth. Now, every year, we have to balance that. The fortunate thing is that we have a demonstrated track record to be able to actually grow and do it profitably, and so it's been a tremendously positive outcome for our shareholders. We do not believe in a non-unsustainable top-line growth, where you just buy revenue with no profits. That we believe is a disastrous outcome eventually for the shareholder. That has been proven in industry after industry. Unfortunately, there is a lot of that going on these days around, even our industry, where people are not being really disciplined around investments. Anyway, but our track record is very good. We have an outstanding track record that when we invest in growth, we deliver on it profitably for all of our stakeholders.

At the same time, there are times where we ramp up increased R&D investment, primarily because we see more growth down the line from more opportunities. That's a good side, in our view. We always do it in a very measured, judicious process so there is good return for our shareholders in the short and long-term, as well. Our track record speaks for itself. We've had a very good record in terms of that, and we continue to do that, and that's actually good news because we are a business that's thriving in terms of growth. It's more difficult when you're not growing then we have to reduce costs. That's not the problem that we have. The problem for us is where can we invest, so we can have the highest return rather than, where not to invest? The appetite for growth is significant in our business.

Andy Cross: Wahid, my last question as we're wrapping up here with our conversation with you is, you all are very good, cautious with stock-based compensation. That's getting a lot of attention now with a lot of tech companies of which I put you in that category. How do you balance that between cash compensation, stock-based compensation and incentive rewards for your team and how does that impact your culture?

Wahid Nawabi: Great question, again, Andy, you're asking all the right questions if you ask me in my view. Look, compensation, especially bonuses and stock is fundamental to our strategy. It has been since we've been public. For example, when I first joined AV, one of the reasons I liked it, 15 years ago, was that every employee had a bonus plan. I learned that in the airspace and defend industry, the big primes actually don't even provide a bonus for every employee. There is no such thing as a bonus for everybody. I'm on the same bonus plan as everybody on the factory floor. Why do we do that? It's because we want to align our priorities and our incentives and our outcomes with our shareholders and with our customers, as well. Therefore, it allows us to all move in the right direction and be aligned. Stock, we're generally conservative because we care about our shareholders, but we do know, and our shareholders recognize this that stock-based compensation for our employees is critical. We have people that have been with our company for over 40 years, Andy. Why? Is because we believe in the long-term win-win-win relationship and outcomes as a team. I think that's going to continue to be part of our strategy, and the beauty of this was the best example that is BlueHalo. That is an all Scott deal. They believe so much in their strategy and our strategy that it took 100% stock. It's really unheard of for private equity firm, Ray Repi one, Arlington Capital, for any of them to take it, but I have great relationship with them, and they really believe in the long-term strategy that we both have as a partner, which is exciting. I think we are positioned and poised for a lot of strong performance and prosperity over the next several years.

Andy Cross: Wahid Nawabi, thank you for joining us here for the conversation about air environment. Exciting times ahead. Challenging also as you bring in a very exciting partner in BlueHalo and an acquisition that you're going to close sometime hopefully in the next year, we wish you on behalf of the Motley Fool all the best.

Wahid Nawabi: Thank you, Andy. Like you said it right. If it was easy, everybody would do it. It's not easy. It's hard work, but it's worth it, and we're committed to it, and we're excited about it. Thanks for having me.

Suzanne Frey, an executive at Alphabet, is a member of The Motley Fool’s board of directors. Andy Cross has positions in Alphabet and Apple. The Motley Fool has positions in and recommends AeroVironment, Alphabet, and Apple. The Motley Fool recommends Bayerische Motoren Werke Aktiengesellschaft and Lockheed Martin. The Motley Fool has a disclosure policy.