Good day ladies and gentlemen and welcome to the fourth quarter and full fiscal year 2008 AeroVironment earnings conference call. (Operator Instructions) With us today from the company are Chairman and Chief Executive Officer, Mr. Timothy Conver, Chief Financial Officer, Mr. Stephen Wright and Director of Investor Relations, Mr. Steven Gitlin. At this time I would like to turn the presentation over to Mr. Gitlin; please go ahead sir.

Welcome to AV’s fourth quarter and full fiscal year 2008 earnings call. Before I hand the call over to management please note that on this call, certain information presented contains forward-looking statements within the meaning of The Private Securities Litigation Reform Act of 1995. Forward-looking statements include without limitation any statement that may predict, forecast, indicate or imply future results, performance or achievements and may contain words such as believe, anticipate, expect, estimate, intend, project, plan or words or phrases with similar meaning. Forward-looking statements are based on current expectations, forecasts and assumptions that involve risks and uncertainties including but not limited to, economic, competitive, governmental and technological factors outside of our control that may cause our business strategy or actual results to differ materially from the forward-looking statements. Factors that could cause actual results to differ materially from the forward-looking statements include but are not limited to reliance on sales to the U.S. government, changes in the supply and/or demand and/or prices for our products, the activities of competitors, failure of the markets in which we operate to grow, failure to expand into new markets, changes in significant operating expenses including components and raw materials, failure to develop new products, changes in the regulatory environment and general economic and business conditions in the Unites States and elsewhere in the world. For a further list and description of such risks and uncertainties, see the reports we file with the Securities and Exchange Commission. We do not intend and undertake no obligation to update any forward-looking statements whether as a result of new information, future events or otherwise. The content of this conference call contains time sensitive information that is accurate only as of today, June 24, 2008. The company undertakes no obligation to make any revision to the statements contained in our remarks or to update them to reflect the events or circumstances occurring after this conference call. With that it’s my pleasure to turn the call over to Timothy Conver.

Thank you Steven. Welcome to our fourth quarter and full fiscal 2008 conference call. On April 30th, we completed our second fiscal year-end as a public company and our solid organic growth is once again in line with our targets. At the beginning of FY08 we said we expected 20% to 25% revenue growth but 12% to 14% operating margin. Continued strong demand for our products and services made for a record fourth quarter revenue of $64.3 million and a total FY08 revenue of $215.7 million. This represents a year-over-year revenue growth of 24% with an operating margin of 13%. Doing what we say continues to be a core value of the company in all of our relationships. In addition to delivering the financial results and supporting our customer needs, we made significant progress positioning the company for future growth across our businesses. Here are eight examples of that progress. We successfully transitioned Wasp 3 into a full rate production in support of the BATMAV program with both the US Air Force and the US Marine Corp placing orders for these systems. We won a competitive award to develop our Global Observer stratospheric persistent UAS under a $57 million joint capabilities technology demonstration program. We grew our UAS spares and repairs business in support of the growing number of our Raven and Wasp systems used by our customers. We added to the number in international allied military customers for our small UAS. We achieved important milestones in several technology development programs including Global Observer, Switchblade and digital data link. We managed to increase and expand the number of architectural wind early adopter systems purchased by our customers and installed on their buildings. We successfully demonstrated our PosiCharge technology as fast charge infrastructure for on-road electrical vehicle demonstrations in both the…

Good afternoon. Revenue for the fourth quarter was $64.3 million, and increase of 27% over fourth quarter of prior year of $50.7 million. Looking at revenue by segment, UAS revenue was $56 million, an increase of 25% over the prior year. The growth in UAS revenue was due to higher product sales and project R&D, partially offset by slightly lower services. PosiCharge revenue was $3.9 million, an increase of 45% from Q4 last year primarily due to higher revenue from sales to the automotive market. And energy technology center revenue was $4.4 million, an increase of 43% from Q4 last year due to higher power processing equipment deliveries. Turning to gross margin, gross margin in the fourth quarter was $23 million, up 20% from Q4 of last year. Gross margin as a percentage of revenue was 36% versus 38% in Q4 last year. By segment UAS gross margin was $20.1 million up 18% from Q4 of last year and as a percent of revenue UAS gross margin was 36% versus 38% last year. This decrease in gross margin rate is primarily due to higher program costs. PosiCharge gross margin was $0.7 million, up $0.3 million from Q4 last year primarily due to higher sales volume. As a percentage of revenue PosiCharge gross margin was 19% versus 16% in Q4 last year. Energy technology center gross margin was $2.1 million, up $0.5 million from Q4 last year due to higher sales volume. SG&A for the quarter was $9.1 million or 14% of revenue, compared to $7 million also 14% of revenue in the prior year. SG&A growth is primarily due to higher selling and marketing expense. R&D for the quarter totaled $4.7 million or 7% of revenue compared to the prior year amount of $4.7 million or 9% of revenue. Customer…

Thanks Stephen. We look forward to continued growth and opportunities across the entire business. We believe we will grow revenue in fiscal 2009 by 20% to 25% with 12% to 14% operating profit. As we have discussed on multiple occasions, history demonstrates that our quarterly results can be bumpy. Last year timing of orders and operational issues contributed to this bumpiness. During the first half of our fiscal 2009, we will be implementing a customer funded change in the radio frequencies that our small DoD unmanned aircraft system customers use to transmit and receive information. We have fully tested these changes that will implement the frequency upgrade and we are well prepared for this changeover. We are cutting in this change during our Q1 2009. We will temporarily halt shipments of new Raven and Wasp systems while we reconfigure the hardware to the new configuration then upgrade systems currently in the field and resume production shipments. Later in FY09 we expect to introduce our new digital data link as a product improvement and that will also incorporate this frequency capability along with other important enhancements to our small UAS. This frequency change is anticipated in the guidance for FY09 that I just shared a moment ago. I’d like to thank you all for your continued interest in AV and at this point, Stephen and I would be pleased to answer any questions.

(Operator Instructions) Your first question comes from the line of Michael Lewis – BB&T Capital Markets Michael Lewis – BB&T Capital Markets: I was wondering would you be able to provide us with a breakout of the logistics component of the UAS sales in both FY08 and the fourth quarter.

We provide that breakout at the total company level, in Q4 products were 61%, services 21% and project R&D. Michael Lewis – BB&T Capital Markets: Do you have it for the full year?

Full year, 57% for products, 30% for services and 13% for project R&D. Michael Lewis – BB&T Capital Markets: And about the Raven B conversion, how many Raven A systems have you completed thus far and also what’s the total number of Raven A systems left for conversion at this time?

I don’t have the specific numbers off the top of my head, however I think the majority of the Army’s Raven A’s have now been converted to the Raven B configuration.

We don’t know exactly how many Raven A’s are left to be converted but our understanding is contractually there are about 170 Raven A systems that have yet to be converted. Those may be converted at the discretion of the Army or not, we don’t have any orders putting those into conversion mode. Michael Lewis – BB&T Capital Markets: You put out the release on the $7 million Netherlands order, have you delivered any of this product to date?

No.

Your next question comes from the line of Timothy Quillin – Stephens, Inc. Timothy Quillin – Stephens, Inc.: In terms of the production halt that you’re talking about on Raven and Wasp, how should we think about that in terms of the potential revenue impact in 1Q?

Well I think overall it’s positive. It’s a directed change funded by the customer and that has an overall positive effect on revenue. In Q1 we expect it will have other things equal, a negative effect because we’ll be deferring some production shipments while we cut in that change.

As Timothy mentioned, in cutting in that change we’ll defer revenue into the balance of the year. We probably don’t want to get into giving specific guidance by quarters and just stick with our annual guidance for all the reasons that we’ve discussed in the past but since we are talking about this, probably the way to think about it is this cut-in will—in Q1 will reduce our product revenues on the order that they would be running on the order of about two-thirds of the level that we were at in Q4. Timothy Quillin – Stephens, Inc.: Can you give us some sense of just in general what the Raven backlog and pipeline looks like right now. I know you still have some remaining backlog from your $46 million order from the Army, are you anticipating additional orders this quarter or should we expect the backlog, the funded backlog to decline by the end of July?

Well our funded backlog currently at $82 million is higher then it was last year but if you look at the trend, we’ve never had multi year backlog. We’ve never had huge levels of backlog so we’re continuously getting orders and filling them. Probably the metric we have talked about in the past with respect to Raven is the Army acquisition objective of 1,900 systems. Through Q4, we are about 43% delivered against that Army acquisition objective. Timothy Quillin – Stephens, Inc.: The energy technology center revenue bumped up quite a bit, is that solely the power processing equipment and is that sustainable and also is there some Global Observer revenue that’s booked there and some that’s booked in UAS or how do you record the Global Observer project?

The energy technology for the full year is up about $900,000, probably the—surprisingly the single largest contributor to that variance was architectural wind. Power processing would be the other main component of that, again on a full-year basis. Global Observer revenues are all in UAS. Even a number of the engineers in the energy technology center support Global Observer but the revenue is all recorded under UAS. Timothy Quillin – Stephens, Inc.: The energy technology center, was up $2 million quarter-to-quarter, $4.4 million versus $2.3 million in 3Q 2008.

That growth would be power processing systems. Timothy Quillin – Stephens, Inc.: And is that sustainable?

What Stephen is referring to power processing systems is the fast charge test equipment and I don’t know that sustainable is the right term, but clearly more and more organizations on a global basis, whether they are automotive companies, start-ups or battery or fuel cell firms are devoting an increasing amount of their energies to developing both electric and hybrid electric vehicles and that is the primary driver for revenue in that product line for us. Timothy Quillin – Stephens, Inc.: What do we expect the tax rate to be in fiscal 2009?

Assuming the R&D credit does not get renewed, I would think of something in the high 30s, approximately 37% and if the R&D credit gets renewed as it has a number of times in the past, I’d knock a couple of points off of that to 35%.

Your next question comes from the line of Chris Donaghey – SunTrust Robinson Humphrey Chris Donaghey – SunTrust Robinson Humphrey: I was wondering if you could update us on kind of the congressional outlook for the wind tax credit given the focus on energy these days by congress.

Well I can tell you what I know; I don’t know if that will count as a meaningful update or not. There is language in both the energy bill and the agriculture bill that address small wind. Although the language in each of those bills is less then what we are looking for, and what we’re looking for is parity in terms of investment tax credit with small solar. So we expect that it’s likely that we’ll get some help in that existing language but that we’ll be continuing to look for a bill that provides parity across the board. There seems to be bipartisan support for renewable energy and for the concept of parity in the investment tax credit but you know as well as I do how difficult it is to predict legislation. Chris Donaghey – SunTrust Robinson Humphrey: Just from the development of that product, from the deployment perspective what are you looking for from a milestone perspective before you really open the throttles on business development activities in trying to put that out in the market aggressively?

I think that that investment tax treatment is a significant objective of ours. We are also being careful to move reasonably slowly as early adopters get real-world experience with the system. I think I’ve mentioned before we’re currently on the third generation of this technology and we’re in the midst of developing generation four. So far we’re very pleased with how it’s behaving and how it’s being received but it’s an entirely new concept and I think it’s prudent for us and our customers to know what the real-world experience is. So I would think a number of months of additional real evaluation insight is appropriate. Chris Donaghey – SunTrust Robinson Humphrey: And then on the Raven program, you mentioned that you’re going to offer DDL as a product improvement later this year, are there other improvements that will work this towards a Raven C type of upgrade or how would you expect DDL to be deployed? Does it involve a complete replacement of the system to upgrade to DDL?

Well let me take that in two pieces; one is DDL itself. I think our current expectation is that will be introduced and rolled out independent of other product improvements, and before other product improvements. It will require both hardware and software upgrades on the airframe and in the ground control system. The list of other product improvements that we’re working on with a broad set of Raven customers range from payloads and imagery to other characteristics of the system. There’s a lot of energy in the customer community about that opportunity and we’re optimistic about that but we think that will follow the introduction of DDL. Chris Donaghey – SunTrust Robinson Humphrey: Is there any way to estimate at this point what that—what a DDL conversion would run per system? Is it 50% of the original system cost, is it 25% is it 75%? Is there any way to quantify that at this point?

We haven’t put a specific price point on that and in general we haven’t [inaudible] about specific prices. It’s certainly not a 50% kind of price of the original system.

I think we’d probably have to hunt that one down the road, we haven’t priced it and we can’t talk about it here. Chris Donaghey – SunTrust Robinson Humphrey: Do you have an IDIQ backlog number?

Yes, and again firm backlog is what we really look at, IDIQ unfunded backlog as of Q4, $384 million.

Your next question comes from the line of Brian Gesuale – Raymond James Brian Gesuale – Raymond James: I wanted to kind of chat a little bit about this frequency conversion just to make sure that I understand it. Will you still be delivering Wasp product and is that why you’ll still have kind of that one-third of the product run rate? And then maybe how many of the Ravens are you under contract now to swap out the frequencies when you do that upgrade phase and when should we expect that to start? And then maybe, if you look at this in the context of your contract mix, what is this going to do to your cost plus mix and maybe your overall contract mix as you shut the line down before ramping it back up in the second quarter?

Well this change affects both Wasp and Raven and it affects all systems that DoD uses. And there’s a slight—as we implement it we’ll be implementing Raven first, then Wasp second. It will affect—once the cut the change over then all future production under contract will be delivered with the new frequency capabilities.

Let me answer that two ways, for Q1 as I said earlier, we don’t want to get into a lot of detail on it that could be construed as guidance. I would just say the product revenues in Q1 will be about a third lower then the levels we had in Q4 based on what we see today. The broader issue of mix let me talk about the full year. In fiscal year 2008 we had 57% products, 30% services and 13% project R&D as I indicated earlier. As we go into fiscal year 2009 we will see growth in all areas but there will be more growth in project R&D, primarily due to Global Observer [relative] to the other areas so in terms of overall mix as we look out into 2009, we would expect the project R&D to grow from the 13% up somewhere into the low 20s. And then the other areas to both the products and the logistics as a share of the total to go down a little bit. Brian Gesuale – Raymond James: As far as the backlog goes, you know as you mentioned record funded backlog here, given the conversion and kind of the disruption on the product line, is it correct to think that most of these or a good portion of the recent orders you’ve had are really tied to this frequency conversion and of a cost plus nature? Or how actually do we look at that?

Some of it has been cost plus. I think most of the conversion work will be done under a CLS contract. And again these conversions are for our DoD customers. We’re not—it doesn’t go beyond there. Brian Gesuale – Raymond James: And I guess in terms of targeting—give us some magnitude or a timeline in terms of—from I think Tim you mentioned phase one is shut the line down and halt shipments, phase two is upgrade the existing inventory and then third is production units getting shipped out with the new features. When is that phase three kind of kick in as you notionally see it today?

That will all kick in, in Q1 so it’ll be wham, bam, and wham. That sort of hiatus really is, was in the middle of Q1 and production bought before Q1 concludes. Brian Gesuale – Raymond James: If we look at the UAS mix, it looks like that maintenance line has been very bumpy on a quarter-to-quarter basis as you would expect, and so is the product side. I think your UAS product revenue was up more then twofold from the third quarter, as we kind of move out and you talk about that growth in product, how much of that was Raven versus Wasp and are we starting to see some of these products that you’ve worked for several years to get to production rates, are we really starting to see that contribution come out in that balance here? Is that really the strength of the business that we’re seeing?

I think the—in Q4 the part of that significant increase in products was picking up some—what you saw as a relatively low shipment of products in Q3, and that was driven as I think I mentioned in my comments, order flow and some operational issues. And secondly it’s the ramp up of Wasp so we got full rate of production approval earlier in the year. As we began to roll that out we had the—we don’t find surprising as early start-up challenges but we’re on track and shipping those out at an increasing rate now. So I think it’s a long answer to your question to say yes, we’re starting to see significant contribution now from Wasp as a new product.

Your next question comes from the line of Howard Rubel – Jefferies & Company Howard Rubel – Jefferies & Company: I think you said that production rate for the first quarter would be down by a third, is that correct?

Yes, from the Q4 level. Howard Rubel – Jefferies & Company: Could you give us a sense of the number of customers in NATO that are now interested in either Raven or Wasp?

We are working with over a dozen customers, potential customers right now, international customers, primarily interested in Raven and a number of those now with the production introduction of Wasp. There’s a growing interest there. So I don’t think I can get into a specific number in NATO, but hopefully the more then 12 baker’s dozen is helpful. Howard Rubel – Jefferies & Company: There’s only 20-odd in NATO so I figure that’s still a good stab at that by any stretch of the imagination. Where are you with getting Switchblade into the field? I know that there have been a number of issues that you need to overcome.

Well the issues are more a matter of demonstration of this new capability. We are doing very well on the second generation demonstration contract that we are working on now with our—from our original customer. We’re expecting to do full scale demonstrations late summer, early fall on that program. And we now have a second—a contract from a second customer for a Switchblade derivative and we have very significant interest from other customers that we expect to show up as we go forward. Our current view is that we should see increasing revenues from Switchblade throughout this fiscal year. We think most of those will probably continue to fall in our R&D category and we think it’s not likely that it would transition to production orders yet this fiscal year. Howard Rubel – Jefferies & Company: You might call them [l-rip] at this point, would that be a fair way to think about it or is that--?

I’m not sure that I’d—certainly not at this point, we are not in what I would call an [l-rip] phase at this point. I think we’re still demonstrating specific capabilities to customers and as we move farther down that line we’re going to go I think through more demonstration units and then into [l-rip] and then into production and whether we’re in the latter part of this year or beginning next year when we get to that point, it’s a little hard to pin down. Howard Rubel – Jefferies & Company: So what you’re finding is that the demonstration of the vehicle is creating more interest by other customers?

Yes, I think that’s been a very clear outcome and further I think there’s a very broad level of interest looking at the results of the demonstrations of the second stage contract that we’re currently in and those demonstrations as I mentioned, would happen late summer early fall. Howard Rubel – Jefferies & Company: There were a couple of other high-flying UAS contracts I think awarded to either Boeing or Lockheed, one of them was called something like Vulture or something like that; ultra-high UASs I believe. Is this just an alternate solution and you weren’t competing or how do you sort of look at that market either opportunity or challenge or how would you define it?

Well Global Observer is a JCTD program that’s funded out of the office of Secretary of Defense and is—or originated out of the office of the Secretary of Defense and it’s funded by six different customers and managed by SOCOM. Its intent is to produce a complete system and do a full demonstration of military utility for a handful of specific applications. Vulture, that you mentioned, is a program sponsored by DARPA. Its objective as published is to develop an airplane that flies up to 100,000 feet for five years at a time, and it’s a very long-term R&D focused program to develop a capability that is well beyond any current technology. We did put a proposal in for Vulture with DARPA and we did not get an award. They awarded three different contracts. I guess I should point out that prior to developing the Global Observer system, the core technology that led to that was our solar unmanned aircraft program that we conducted for over a decade with over 50 flights and on throughout that program we set and currently hold the world altitude record for any kind of airplane in level flight. So I think we have a huge percentage of the world’s experience in that flight regime. Howard Rubel – Jefferies & Company: My sense would probably be a huge percentage of the patents in that regime as well.

Well we’ve been plowing early, unpreviously unplowed ground in that area for a long time. Howard Rubel – Jefferies & Company: I just want to talk about energy for a moment and architectural wind, how many customer installations do you have now and then how do your customers think about carbon credits and is this sort of something that really would play in Europe?

I think we have less then 10 current installed customers on architectural wind. Right now carbon credits aren’t playing a significant role in the early evaluation adoption of these systems from my perspective but I do think that as a production business, it becomes a significant factor.

Your next question comes from the line of Michael Ciarmoli – Beonning & Scattergood, Inc. Michael Ciarmoli – Beonning & Scattergood, Inc.: Relating to the frequency conversion in Q1, what impact do you think that has on gross margins if any?

I don’t think we have anything to comment on there. We really don’t want to get into guidance by quarter. We’ve baked it into our full year guidance. Michael Ciarmoli – Beonning & Scattergood, Inc.: Just this most recent quarter, product revenues of $39 million and product gross margin 36%, so you had a high on the revenues there and a low in the gross margin, is there anything to read into that? Was that a function of the programs or customer mix? Can you just elaborate on what was going on there?

I think it’s really just the programs that we were working on in the quarter, there’s nothing—no significant messages there.

Your next question is a follow-up from the line of Timothy Quillin – Stephens, Inc. Timothy Quillin – Stephens, Inc. : With regards to PosiCharge gross margins, I think 29% or so for the year, is that how we should be thinking about those going into fiscal 2009 and regarding Wasp and where you think the Army is at as far as evaluating the Wasp for lower unit level deployment?

I think the 29%--first we won’t be breaking it out go forward. But just as it stands 29%, we wouldn’t normally—we wouldn’t guide on gross margin levels period much less within the segment, but I guess my editorial is the 29% is lower then we would like to see it generally. As it is a commercial business we’d like to eventually see higher gross margins in PosiCharge.

Regarding the Army and Wasp, the Army has not bought Wasp. Right now our only two Wasp customers in production are the Air Force and the Marine Corp. The Army and other services and other customers are looking at Wasp and the relative benefits and trade-offs that it provides compared to Raven and as I think I’ve indicated in the past, its my view that the ultimate opportunity for small UAS gets down to the squad level because that’s where the systems are actually used. In the case of the Army they’re issued at the brigade level but then used by squads. So I know that there is a level of interest but it’s hard for me at this point to quantify it or to put it in any kind of a timeframe.

Your final question is a follow-up from the line of Michael Lewis – BB&T Capital Markets Michael Lewis – BB&T Capital Markets: With regard to the one-third of product revenue coming out of UAS in the first quarter, now the question is how you do expect that we’ll pick that back up? Will that be evenly flowing through the rest of the year or would there be a proportional ramp through the remaining three quarters?

I’d say that latter, proportionally ramp it through the balance of the year. Michael Lewis – BB&T Capital Markets: Cash flow from operations for the full year?

Yes, we were positive fiscal year 2008. We were positive. Michael Lewis – BB&T Capital Markets: Do you have that actual number?

Yes, $15.5 million for the year. Michael Lewis – BB&T Capital Markets: And your depreciation and amortization for the year?

Yes, $3.8 million with $1.2 million of that in Q4. Michael Lewis – BB&T Capital Markets: And then just finally you had offered the customer funded R&D in the fourth quarter, I missed that number, what was that again?

Customer funded R&D in Q4 was $11.3 million.

And at this time there appear to be no further questions; I’d like to turn the conference back over to management for any additional or closing comments.

Well thank you all for your continued interest and support of the company. We look forward to reporting to our progress for the first quarter of fiscal 2009.