Welcome to the third quarter 2009 AeroVironment earnings conference call. (Operator Instructions) With us today from the company is Chairman and Chief Executive Officer, Mr. Tim Conver; Chief Financial Officer, Mr. Steve Wright and Director of Investor Relations, Mr. Steven Gitlin. At this time, I'd like to turn the presentation over to Mr. Gitlin.

Welcome to AV’s third quarter fiscal 2009 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 are based on current expectations, forecasts and assumptions that involve risks and uncertainties 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, failure to develop new products, changes in the regulatory environment and general economic and business conditions in the United States and elsewhere in the world. Additional information regarding these risks and uncertainties is contained in the reports we file with the Securities and Exchange Commission. Copies are available from the SEC as well as on our website. 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, March 9, 2009. 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. It is now my pleasure to introduce Tim Conver.

Thank you Steven. Welcome to our third quarter 2009 conference call. The time that has passed since our Q2 earnings report and today has seen dramatic economic and political developments, unprecedented in our experience and affecting U.S. and global commerce. One effect of these developments is growing uncertainty regarding commercial and government funding and purchase decisions. We believe our performance has been strong relative to many other businesses struggling in this environment but we do feel the impact. AV’s growth is based on fundamental propositions that our innovative solutions were developed to contribute important and valuable new benefits to our customers. Given the difficulty in predicting the timing and value of market adoption we have always taken a long-term view of our business and market opportunities. Our team has historically performed extremely well in delivering results that met our guidance even though our quarterly results tend not to be linear. However, I doubt I have ever addressed investors without pointing out the bumpy quarters that have been, and we expect will be, characteristic of our business. Three quarter’s into our fiscal 2009 our year-to-date revenue was up 13% year-over-year and our operating profit is 14%. Q3 revenue was up 8% over Q3 last year but was lower than we expected. There were multiple contributors to relatively low Q3 revenue and I’m going to go into more detail here than usual to provide perspective on these contributing factors and their implications. They can be classified into four categories. The first category is structural. As we pointed out in our last call every year we close operations between Christmas and New Year’s and this year that amounted to almost two weeks production. We also know there is a likelihood of late order flow affecting Q3 associated with the government’s budget cycle and…

Thanks Tim. Good afternoon everyone. Revenue for the third quarter was $52.2 million, an increase of 8% over third quarter prior year of $48.5 million. By segment, UAS revenue was $43.4 million, an increase of 3% over the prior year. Growth in UAS revenue was largely due to higher customer funded R&D and higher product deliveries offset by lower services. The increases in customer funded R&D and product revenues were largely due to increased activity on the Global Observer contract and product deliveries to international customers respectively. The decrease in services revenue was primarily due to higher revenue in prior years for the retrofit of Raven A to Raven B. EES revenue was $8.8 million, an increase of 39% from Q3 of last year primarily due to higher deliveries of EV test systems. Turning to gross margin, gross margin in the third quarter was $16.7 million, down 16% from Q3 of last year. Gross margin as a percent of revenue was 32% versus 41% in Q3 last year. By segment, UAS gross margin was $13.5 million, down 23% from Q3 of last year. As a percent of revenue, UAS gross margin was 31% versus 41% in Q3 last year. The decrease in gross margin rate was largely due to lower revenue on cost site contracts due to reduced indirect rate application and higher program costs. EES gross margin was $3.2 million, up 37% from Q3 of last year. As a percent of revenue EES gross margin was 36% versus 37% in Q3 last year. SG&A for the quarter totaled $8 million or 15% of revenue versus $8.2 million or 17% of revenue in the prior year. SG&A expense was lower primarily due to lower selling costs. R&D for the quarter was $4.6 million or 9% of revenue compared to the…

Thank you Steve. As I indicated earlier we anticipate another strong fourth quarter this year. However, a number of factors have built up over the last three months that limit our ability to catch up to prior growth expectations for fiscal year 2009. Pressure on capital spending is depressing PosiCharge sales and delays of some small UAS buys in international contracts, preclude some revenue we had planned in Q3 and Q4. Global economic conditions represent an overhang that may yet affect our business in ways we do not currently anticipate. As a result, we are revising our revenue guidance to reflect anticipated full year revenue between $240-250 million, or a growth rate between 11-16% over fiscal year 2008. This is down from the 20-25% growth we communicated at the beginning of the fiscal year. We still expect to achieve our previous operating margin guidance of 12-14%. I am disappointed that we must revise our guidance for the year which is inconsistent with our history. I balance that against evidence supporting attractive long-term growth prospects and our not insignificant year-over-year growth expectations in an otherwise challenging environment. We provide solutions that really matter to our customers and we are developing entirely new solutions that promise to develop even more capabilities. We have a strong financial foundation and the best team anywhere to man the rigging as we navigate through this economic storm. Our Q3 2009 produced a record backlog of orders and significant development milestones that have been very well received by our customers. I have never been more optimistic about our long-term growth prospects tempered only by the overhang of economic unknowns. I believe Global Observer and Switchblade represent significant potential to catalyze future growth and the probability that Electric Vehicle Solutions could also drive significant growth is increasing. My thanks to our team members, customers, suppliers and investors for your ongoing commitment to our mutual success. Steve and I will now open the call to questions.

(Operator Instructions) The first question comes from the line of Michael Lewis – BB&T Capital Markets. Michael Lewis – BB&T Capital Markets: This is the first major deferral I have seen in a program of record in UAS since I’ve been tracking that segment for the last 4-5 years. What are the customers saying? What steps are they taking to get the procurements back in motion? Just a final question, if we didn’t see this deferral come into play where would you have posted revenue in that side?

I suspect you are referring to the orders that we indicated we expected in Q3 that were deferred. A couple of reasons I think. In the first place, it is not a…I wouldn’t characterize it as a deferral of a program of record such as in one case we believe our customer is just holding off the procurement because they want to wait for Digital Datalink to be available in production rather than buy current analog systems they then would intend to retrofit. So I think there is a balancing there. In a few other cases I think it is a matter of customers that are very attracted to and want to acquire some systems that are not under program of record and as a result they are still in the process of getting their financing together.

I would add to that in the quarter the normal ebb and flow of our orders some of that was expected. No programs of record were deferred, just a number of smaller opportunities along with lower PosiCharge, international SUAV was lower than we expected and as Tim mentioned we have had some reduced project revenue because of lower hiring. We didn’t guide Q3 but I will say we were probably expecting a Q3 some place in the mid $60 million. Michael Lewis – BB&T Capital Markets: When we start to see the progression of DDL upgrades moving into the mix here will this be a considered a production upgrade with regard to the P&L or is this a servicing upgrade? The reason I am asking is I’m trying to reconcile what the margin implication will be from the difference from production to servicing. Can you help me understand how that will work?

We have yet to define that but my thinking is the DDL contract that was led includes new systems and retrofits. Both are fixed price for the majority of that contract. It is fixed price. I expect the retrofits the way they will be done will be classified as services just like the Raven A to B was services last year and the new systems would be product. Michael Lewis – BB&T Capital Markets: One more question about the tax. I noticed the negative tax. If we back out, assuming a 35% rate in the quarter that is a variance of $1.7 million. Is that all tax R&D credits in the quarter or is there something else going on there?

The major effect there is the release of the FIN48 reserves. We did actually define them at the time of the 10K. They relate to the expiration of the statute of limitations for the years that those reserves were established. The statute of limitations ticked off in January and so we released those reserves about $1.3 million. That is virtually all of the variance that takes us down to about a 25% year-to-date rate. The current period is just what gets us to that year-to-date rate.

The next question comes from Brian Gesuale – Raymond James. Brian Gesuale – Raymond James : I wanted to dig into contract services. I’m wondering if you can give us a little bit of help on the expected run rate going forward. Is it in the $22 million, $28 million range or somewhere in between? Also talk about the margins if you have a little color on what dinged the margins and how one-time in nature they are as we go forward?

In terms of guiding on elements of the P&L we typically don’t do that. Tim may talk a little bit about services going forward. I can say that services were low in the quarter certainly compared to the prior year end and compared to the prior year on a year-to-date basis because we had the Raven A to B upgrades in last year’s services number and those were large. In terms of the margins, for the quarter we were at 32%, down six points sequentially. In UAS they are down from 35% to 31%. Three points of that or the majority of it is due to an indirect rate change we had that reduced the margins on our cost-plus business of about $1.4 million. The balance is in EES. You can see that going down from 54% to 36% which is something that is going to change over time as we have indicated in previous calls because it really depends on the mix of orders that we fill in the quarter. Brian Gesuale – Raymond James : Maybe you can give a little bit longer term; obviously you have reigned in guidance this year based on what seem to be some short-term phenomena. You have record backlog and several new products you expect to hit over the next 12-18 months. Is AeroVironment still a 20-25% growth story going forward or is this something that this bump in the road made you reconsider what the growth targets are?

I don’t see any change in our long-term view of the growth prospects for the company. Our current planning process first re-looks at a 3-5 year look out and then we refine the first year of that plan in our annual operating plan. We are in that process now. We would expect to provide guidance for FY10 in our fourth quarter call. If anything, I am more and I think there are stronger reasons to support our long-term growth thesis from my perspective than there ever have been based on things like Digital Datalink transitioning to production, the real successful demonstration of Switchblade and the ongoing support and success of the Global Observer program. In that aspect, elements of the quarter were very supportive of our long-term growth expectations. Brian Gesuale – Raymond James : On Switchblade it sounds like the activity and the opportunity is perhaps larger than what you had anticipated. Is this pushing to the right a little bit and what should we expect in terms of a full production decision timeframe?

I think the Switchblade and the ambiguity around timing is a poster child for the adoption of new technology and innovation. As I have mentioned before this is really an entirely new capability and it has been very positively received both by the initial customers that funded the current demonstration and by a growing array of additional customers that have now become aware of this and are getting increasingly interested. Two years ago it was on no one’s radar screen. One year ago it was on virtually no one’s radar screen. So when the current DOD budgets were put into place nobody in DOD anticipated the availability of this capability. So now with a large number of customers looking at it as a very attractive capability they have to then decide how to fund it and what that process would be. So that is what the timing ambiguity is about and a little more explicit I think once the first customer enters into a full rate production intent we will be in the same kind of a process that we have been in all of our programs of record for small UAS. Typically that has been I think 11 months in the case of Wasp and about 14 months for Raven from initial contract to full rate authorization. Probably a little bit longer for Switchblade because of the addition of the munitions, maybe 18 months. That doesn’t preclude earlier orders of hardware prior to full rate production configuration. We have seen that in most of our other programs in the past.

The next question comes from Chris Donaghey - SunTrust, Robinson, Humphrey.

Just to follow-up on the quarter, with the orders you saw slip and the timing issues can you give us a relative feel for how much…would you have been much closer to the 20-25% if you hadn’t seen some of the slippage this quarter? Is this really just a timing issue or has there been a segment of the customer, especially on the foreign side, that you just think is going to be in a perpetual deferral until the economy turns around?

Let me go back to those four categories and see if I can’t break those down a little more. One is what we are seeing as an economy driven effect. In the case of PosiCharge sales I think that is just literally a dramatic reduction in the capital acquisition of forklifts and a relatively smaller but still an effective reduction in our PosiCharge sales. I think that has happened and that is the way that is. The other economy effect from our perspective is this precipitous slow down in procurement from international military customers. I believe that is directly an effect of just a lot of uncertainty in many other countries on their military budgets. In some cases they have already been cut and in other cases they are going to a re-evaluation. Once they settle down on what their real budget is then presumably they will be reallocating what their procurement intents are. Having said that, I think we are still in a good position there. I know there is strong interest in many countries in this capability and when the issue is a constrained budget we do provide ISR, the classic 80% solution at 10% to cost and I think that could turn out to be good for us relatively in the longer term. We won’t know that until we see it. Changes in the timing of U.S. government procurements I think are all just timing related. I don’t think anything went away. I think some of them are delayed.

So then as we look forward can you just walk us through what the timelines look like in terms of Digital Datalink going into full rate production, Puma AE going into full rate production, acceleration of Global Observer and I think Switchblade may be a little bit further out but those three in particular as we go into 2010?

Let me start with Digital Datalink because that is the most definitive. We already now have the LRIP contracts that will take us into full rate production. I think that is going to start delivering those in the second half of 2010 probably when the Q2 and Q3 when we will realize most of the revenue from those initial contracts and I think in the latter part of 2010 we will begin to deliver production, Digital Datalink retrofits. Of course that is ultimately going to be gated by full rate production approval by our customers. This is a class I change so it gets treated much like a new procurement. Barring any unforeseen hiccups there that is the timing we expect. So the risk on the downside is something happens with the schedule of the testing or something that might push that out a little. On the other hand there could be a desire on our customer’s part to accelerate the change over in which case we will of course do everything we can to pull those in. Moving to Puma AE that was the second program you questioned. To our knowledge the initial evaluation and initial testing of that system has been very positive. I think we not unusually have a couple of things that have popped up in our customer’s testing that we need to modify for them but we don’t see any problems in doing that. I think we are very optimistic about the excitement in the customer community for adopting this and I would expect we would see additional orders early in the year for Puma AE. Global Observer, that is as you know a 3-year program. It started in September 2007. We are well into that and going extremely well from my perspective. I expect we will be in flight testing in the second half of our fiscal year upcoming. I don’t expect to see major new order decisions on that before we are well into our testing and military utility demonstration. Our customer base has a propensity to fly before buy. I guess did I cover that? You also wanted to talk a little bit about Switchblade. I think there is more uncertainty on timing there just because of the points I made talking to Brian. I would not be surprised to see strong customer interest turning into more orders in FY10. It is just really hard to determine how, what…there is a number of different customers and a number of different procurement approaches they could take. I know they are actively making those decisions as we speak. I am optimistic but I don’t want to lay down any specific timeframe because I just don’t have enough data.

I’m just trying to figure out over the next couple of quarters should we anticipate based on what you are seeing with DDL in particular lower than what would be average revenue growth for a couple of quarter’s before things start to accelerate when DDL goes into full rate production? Can you help us with the visibility you are seeing on at least a qualitative basis for the next couple of quarters?

I think there we really have to punt and say we have talked about the balance of the year. You have Q4 and we have to wait until we give our next guidance on the Q4 call.

The next question comes from Tim Quillin – Stephens Inc. Tim Quillin – Stephens Inc.: I have a series of easy questions. First of all, the lightening round. Number one what was government funded R&D in the quarter?

Customer funded R&D was 32% of revenue. Tim Quillin – Stephens Inc.: About flat quarter-to-quarter in dollar terms?

$16.8 million, up from $16.1 million in the previous quarter. Tim Quillin – Stephens Inc.: It is hard to kind of get into this number but it looks like if you exclude that out of your service line the other UAS service has declined a lot?

Yes. I tried to answer that earlier. The pure services was about $5.2 million for the quarter, about $33 million year-to-date. That is down from the prior year. A couple of programs in there, but by far the largest effect is Raven A to B which ran through services last year. Tim Quillin – Stephens Inc.: I was just looking at it quarter-to-quarter.

Quarter-to-quarter I think you have to take it a little bit with a grain of salt. Quarter-to-quarter a lot of it depends on how much backlog we have at the time and what makes sense for the factory to work on. Tim Quillin – Stephens Inc.: So that number could bounce back up in the fourth quarter?

It very well could. I’m not going to predict that but it very well could. I think year-to-date looking at that it is a little more relevant and again the same explanation. The A to B conversion is making 2008 much higher. Tim Quillin – Stephens Inc.: I got a little off track but my second question is the Army progress towards their 1,900 Raven goal.

First of all I want to update that goal. We have been told the goal is not 1,900 systems. It is now 2,182 systems. It has grown by 134 which is administrative. They are now including [USOC] in their number. The progress against that is we are 49% delivered against that. We delivered 79 systems to the Army in the quarter. Tim Quillin – Stephens Inc.: Tax rate for Q4? Should we be looking for 34%?

No. I think somewhere around 30% for the full year and then I’ll let you back into it based on our year-to-date. Tim Quillin – Stephens Inc.: How about for fiscal 2010?

At this time I’d like to wait until we do our next guidance. Tim Quillin – Stephens Inc.: The indirect rate variance on the cost-plus contract you referred to was that just kind of a one quarter variance and you’ll get the costs in line now?

I guess I would say as a government contractor we use indirect rates based on full year estimates to bill and recognize sales on cost-plus programs. We have these rate changes periodically. We have had them in the past. It is part of doing business. This period because of the low volume and the amount of the rate change, $1.4 million it ends up being not an unusual transaction by itself. Tim Quillin – Stephens Inc.: My only other question, I think we covered a lot of your products but on Wasp. What is happening there in the Marine Corp and what the Air Force is doing and what you think the Army might do on Wasp and when that might happen?

The Wasp as you know was a product that we won the Air Force program of record competition with almost two years ago. So the Air Force has continued to buy according to their initial plan on that contract. Shortly after we won that the Marine Corps acquired a number of Wasp systems on an urgent need statement that they deployed down at the platoon level. A number of other customers are evaluating the adoption of Wasp and I think those customers you mentioned all see a significant benefit to them in adopting that and want to do that. I think for the most part those customers fall into the category of intended purchasers that don’t have a current program of record that covers this and therefore they are still putting funding together and procurement mechanisms that would enable them to buy. That is part of what has been going on recently in some delays in orders we had expected. I still think they intend to do that. They are just putting the funding mechanisms together.

The next question comes from Michael Ciarmoli – Boenning & Scattergood. Michael Ciarmoli – Boenning & Scattergood: On the contract service revenues in general, $5 million, last quarter was the weakest I think you have had in about six quarters. This quarter was even weaker. Is there anything to read into this? We are going to have an obvious wind down in Iraq. You would think with the most usage out there you should be driving substantial levels of services. Do you see any structural change from your ongoing services of the various systems that are deployed in the field and could this line item trend lower as Iraq winds down and maybe Afghanistan there is that transitionary phase before a full ramp occurs?

I don’t think there is a…I wouldn’t characterize it as a structural change. Qualitatively here, I think the biggest effect in the relative difference overall is the factor Steve was talking about where a year ago we had very high revenues in that services category that were associated with the Raven A to B upgrade that was run through the services contract. If the Digital Datalink retrofits we anticipate next year go through that same process which as Steve indicates is currently our best guess then you would see the same kind of surge in revenues under the services area. That product improvement cycle has always been one of the five revenue drivers we have anticipated in our UAS business. Michael Ciarmoli – Boenning & Scattergood: Can you talk about just general service for planes exceeding their average hours or hours flown requirement? Do you have visibility into that line item and how those revenues are performing or are you just looking more at kind of the product improvement service revenues?

We do have some visibility. I will give you some color at least and then I will turn it over to Steve who will talk about real numbers. A couple of things to be aware of is when our customers buy spare parts they do that on a forward-looking basis. So they are anticipating what their future needs are going to be and then they are putting orders in and then months later we are delivering against those orders. Since we operate as the repair depot we hold that inventory and then we use that when they send systems back that need repair. There is by definition the timing of the actual requirement for repairs is unlinked from the date that they are ordered and actually the date we sell the spares initially. That is one factor that might distort how you see that on a temporal basis. There is another factor that we think might be at play here and that is with the high level of Raven A to B upgrades last year and then the retrofit that we did to put the new frequencies in place early this year we ended up putting a lot of new hardware improvements or replacements into hardware from the field which probably had the effect of reducing the operational life of systems that are being used and helping out the near-term operational availability. That is all qualitative things that are going on none of which indicate any underlying structural change. Michael Ciarmoli – Boenning & Scattergood: You mentioned also some of your project related revenues were down because of a lack of employees. Can you point us to specific projects you are working on or how quickly you anticipate filling these vacancies? Is there any shortage in talent out your way?

A requirement for more great people has been a hallmark of our history for the last 5-6 years with the sustained growth in the business that drives sustained growth in employees. The only way we keep the extraordinary level of team performance that we have is to keep hiring extraordinary people. We have been really successful at that over time and right now we just have a large number of outstanding requisitions. We had a very successful job fair last month addressing open requirements in the Monrovia operation, primarily for our EES segment and that was so successful we are going to use the same process soon in Simi Valley with our UAS business. A number of those open requirements are in engineering and engineering skills address both the operational business, our internally funded R&D operations and our customer funded development programs. The same teams that work on IR&D tend to be the same skill sets of people that work on customer funded development. So when we are trading off scarce resources against those two requirements that ends up doing less work than we had planned. We talked last quarter in the call, for example, about accelerating our internally funded R&D and our G&A investments that we thought were great opportunities to support our future growth and improve our competitive position and you will see in the numbers we were pretty flat in those areas mainly because we are reallocating those skill sets to meet customer development programs and even with that we fell behind on some of that revenue on customer development programs. The biggest one is Global Observer but we have a number of other development programs in the UAS business as well as a number of customer funded development programs around primarily Electric Vehicle Solutions. A broad number of programs that all add up to maybe 10% of the revenue miss that we are anticipating for the year. Michael Ciarmoli – Boenning & Scattergood: The other day on the Federal Business Opportunities Website it looked like there was a pre-solicitation posted by the Naval Surface Warfare Center citing that AeroVironment was going to deliver one air vehicle communications model. It mentions Raven B, Wasp, and Switchblade. Can you elaborate on what that might be used for? I’m just reading into it a little but further, the first reference of Switchblade out there. I think it references it for maybe 36 months. Is there anything you could say about that?

I’ll tell you what I know which may not be a lot. I think that is the Marine Corps looking to develop a common ground control system that would enable their ground robots to communicate and work in conjunction with small unmanned aircraft systems. I think that is the basis of that program they are pursuing. I think in the process they are recognizing we already have established a de facto common ground control system for a multitude of small UAS that they use and that other services use. The Datalink in that ground control system is probably the right solution for a broader common ground control solution. I think that is the essence of that and beyond that the fact they are referencing Raven and Wasp and Switchblade I think is an indication of where a number of our customers are beginning to change the way they think about small UAS. This is still, as I said in the past, in my perspective in the early stage of adoption. So where we initially had Pointer and then that was replaced at the Marine Corps by Dragon Eye which was then replaced at the Marine Corps by Raven, kind of a linear progression of platforms, we now have a situation where there is a common ground control system with common Datalink and user interface and three production small UAS airplanes, Wasp, Raven and now Puma AE. Each one of those platforms has a different set of capabilities and as they begin to anticipate Switchblade in the future that will also operate off that same ground control system and Datalink, some customers are starting to look at this more as a family of systems with a common infrastructure and different platforms that are applicable to different mission sets.

The next question comes from Troy Lahr – Stifel, Nicolaus. Troy Lahr – Stifel, Nicolaus: Given the surge in Afghanistan what are you hearing from the customer? Are they telling you they are going to need to ramp up here? Do you guys need to ramp up? I would assume you are starting to have discussions regarding the surge?

There is not a lot of active dialogue right now. I think our customers are making their internal trade off’s and I think they are keeping their powder dry relative to discussions with contracts at least from our perspective. As I mentioned in the comments earlier, Afghanistan was where the initial huge success of small UAS was recognized and the acceleration of adoption throughout DOD was initiated. We would expect that terrain and that very highly distributed operations strategy will be conducive to continued use and high value there. But whether that accelerates or not I think will be a function of how our customers decide they are going to operate and that is still in the planning process. Troy Lahr – Stifel, Nicolaus: Of the service sales you had about $22 million. How much of that, I think you account for Global Observer in that service since it is R&D if I am not correct. Can you maybe break out how much of that ballpark is Raven service related to Iraq and Afghanistan?

The project revenue which is embedded in the services and when you get the Q you will see the project revenue in a footnote, is $16.8 million which leaves the pure services at $5.2 million and I don’t have tracking below that to say how much is due to Raven in Iraq per se.

Our customers literally do not keep track at that level in the field. You are probably used to a lot more specificity in maintenance and repair documents for larger aircraft systems but these systems uniquely are used by ground troops who are literally in the fight and they just aren’t filling out a lot of paperwork. Troy Lahr – Stifel, Nicolaus: Can you maybe help me understand, I just want to kind of circle back on the margins a little bit. It looks like if you want to go year-over-year that is fine but it looks like you had a lot more product sales this year compared to last year and that is higher margin work. I would have thought your margins would have benefited a little bit from a favorable mix this quarter. Can you help me understand that? Isn’t products mostly the higher margin work and services is generally lower margin cost-plus type work?

It can be. I think the easiest way, if you want me to go year-over-year the easiest way for me to talk to it is by segment. The large drop in UAS from 41 to 31 I would point to first of all the 41 last year was sort of out sized. That was the peak of the year and UAS came in at around 36% or 37% which is more typical. So I would say the mix of work last year just tilted very heavily towards the high side. Then we had this maybe three points of rate adjustment in the current period I talked about. EES is generally flat with last year. Sequentially as I indicated earlier EES is below where the kind of margins we have enjoyed in the last two quarters and that literally is going to bounce around every quarter based upon the mix of products that we are shipping that are all PO’s, all fixed price. Troy Lahr – Stifel, Nicolaus: If you look at the growth this quarter year-over-year UAS plus 3% it looks like I guess just taking the mid point of your range you might be calling for back to double digit growth, a stronger recovery in the fourth quarter at UAS. What gives you confidence that these deferrals and the revenue stream starts picking back up and we see more meaningful growth at UAS so soon in the fourth quarter?

Our greatest confidence is the funded backlog of $139 million which is pretty much all UAS. Not to say we will work off all that backlog in the quarter. That backlog comes with delivery dates and it is staged but that is really where we will get most of our deliveries for the quarter. Troy Lahr – Stifel, Nicolaus: On cash flow, what was cash from ops this quarter? I don’t know if you already said that.

No I didn’t. Cash flow from operations was $9.6 million and capital expenditures were $3.2 million for a free cash flow of $6.4 million.

With that as our final question we thank you all for your continued attention and interest in AeroVironment. We remind you that an archived version of this call, all SEC filings and relevant company and industry news can be found on our website at www.AVInc.com. We look forward to speaking with you again following next quarter’s results.

That concludes today’s conference. You may disconnect.