Defense tech company AeroVironment (AVAV) saw its stock surge more than 34% in Tuesday's premarket session after reporting fourth-quarter results that blew past expectations. The company is riding a wave of global demand for drones, loitering munitions, and counter-drone systems, a trend that has accelerated since the war in Ukraine began.

For the quarter, AeroVironment posted revenue of $641.62 million, crushing the consensus estimate of $558.81 million. Organic revenue grew 31% year over year, fueled by strong sales of its Switchblade loitering munitions, Titan Counter-UAS systems, Red Dragon one-way attack systems, and JUMP 20 tactical drones. The Autonomous Systems segment alone generated $492 million in revenue, accounting for 76% of the total.

Profitability also impressed. Adjusted EBITDA hit a record $140 million, with margins expanding to 22% thanks to higher volume and better operating leverage. Adjusted earnings per share came in at $1.84, well ahead of the $1.46 analysts were looking for.

Perhaps the most telling number is the funded backlog, which climbed to a record $1.2 billion. Fourth-quarter bookings totaled $572 million, signaling that demand isn't letting up. During the quarter, the company landed a $117 million U.S. Army contract for its P550 Group 2 drone under the Long-Range Reconnaissance program, following a nearly $15 million award for its VAPOR 55 CLE unmanned helicopter.

Free cash flow turned positive at $73 million in the quarter, the first time since Q1 of fiscal 2025. The improvement came from stronger operating performance and a more efficient Switchblade product acceptance process.

Looking ahead to fiscal 2027, AeroVironment expects revenue of roughly $2.13 billion to $2.23 billion, which brackets the $2.19 billion analyst estimate. However, the company's adjusted earnings forecast of $3.02 to $3.34 per share falls short of the $3.98 consensus. The reason? Investment. Management said it is expanding manufacturing capacity across multiple product lines to prepare for higher demand. As a result, free cash flow is expected to remain negative in fiscal 2027 as capital spending ramps up.

Revenue timing will also be lumpy: the company expects about 45% of fiscal 2027 revenue in the first half and 55% in the second half, reflecting contract timing.

Shares were up 34.46% at $186.90 in premarket trading Tuesday.