Good day, ladies and gentlemen, and welcome to AeroVironment first quarter fiscal 2013 earnings conference call. At this time, all participants are in a listen-only mode. We will conduct a question-and-answer session after management remarks. As a reminder, this conference is being recorded for replay purposes. With us today from the company is Chairman and Chief Executive Officer, Mr. Tim Conver; Chief Financial Officer, Mr. Jikun Kim; Chief Operating Officer, Mr. Tom Herring; and Vice President of Investor Relations, Mr. Steven Gitlin. And now, at this time, I would like to turn the conference over to Mr. Gitlin. Please go ahead.

Thank you, (Tyrone). Welcome to AeroVironment's first quarter fiscal 2013 earnings call. Please note that on this call certain information presented contains forward-looking statements within the meaning of Private Securities Litigation Reform Act of 1995. 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. For a list and description of such risks and uncertainties, see the reports we file with the Securities and Exchange Commission. Investors are cautioned not to place undue reliance on any forward-looking statements which speak only as the day on which they are made. 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 contents of this conference call contains time sensitive information that is accurate only as of today, September 5, 2012. 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. We will now begin with remarks from Tim Conver.

Thank you, Steve. On today's call, I'll review the quarter, our ongoing businesses and new business opportunities, keeping my comments shorter to allow for more time for questions. Jikun will then review financial result sand I'll return to discuss our view of the balance of the fiscal year. The main message of today's call is this: fiscal 2013 is unfolding consistent with our expectations. The risks we discussed in our last call remain but our positive view of the future has not changed. On our Q4 fiscal '12 earnings call in June, I said that we expected Q1 fiscal '13 revenue to be about the same as it was in fiscal '12. And because we're staffed and operating for continued growth, we expected a net loss for the quarter. This is essentially what happened, although actual revenue of $58.7 million was $3 million less than last year. On the bottom line we had a net loss per share of $0.06. Backlog increased 6% quarter-over-quarter and now we have visibility into about 70% of our revenue guidance midpoint for the fiscal year. The $3 million difference in Q1 revenue is attributable to timing and does not affect our plan for the year. Over the past several years, we've seen consistently low Q1 revenue as a result of customer order patterns. This is not indicated diminished demand for our products and services, nor has it reflected execution issues. We expect that a broadening of our customers, markets and solutions over time will ultimately help to normalize quarterly performance. But until that happens, this dynamic will likely continue. Now for a brief summary of our business: our unmanned airplane systems segment focuses on affordable and reliable solutions that use airborne platforms to provide customers with a high-valuable vantage point for obtaining critical information…

Thank you, Tim, and good afternoon, everyone. AeroVironment FY13 Q1 results are as follows. Revenue for the first quarter was $58.7 million, a decrease of 5% over Q1 last year of $62 million. Looking at revenue by segment, UAS revenue was $48.8 million, a decrease of 7% over the prior year. This revenue decrease was primarily driven by lower service revenues. Logistics and repair revenues declined by $5 million driven by the decline in (inaudible) retrofit activities but was offset by higher customer funded R&D revenues of $1.5 million driven by switch blade engineering services. EES revenue was $9.9 million, an increase of 1% from Q1 last year primarily due to higher revenues from a passenger and fleet electric vehicle charging systems offset by lower revenues from our electric vehicle test systems and industrial fast charge systems. Turning to gross margin, gross margin in the first quarter was $19.5 million, down 10% from the first quarter last year. Gross margin as a percent of revenue was 33% versus 35% in the first quarter last year. By segment, UAS gross margin was $16.1 million, down 21% from the first quarter last year, driven primarily by incremental investments for new products transitioning into production as well as lower overall sales volumes. As a percent of revenue, UAS gross margin was 33%, down six percentage points compared to the first quarter last year. EES gross margins recovered to $3.5 million, up 129% from the first quarter last year, largely due to lower program charges on an existing fixed price (NYSEARCA:DOG) development contract and lower manufacturing and engineering overhead support costs to transition new products into production compared to the prior year. As a result, EES gross margin as a percent of sales recovered to 35% compared to 15% from the first quarter last…

Thanks, Jikun. As we look at the balance of fiscal '13 and the external risk that we and others face in this volatile business environment, we still expect international small UAS, switch blade loitering munitions and electric vehicle products to contribute to fiscal '13 revenue growth over fiscal '12. As I said in our Q4 fiscal call, we considered three levels of risk in formulating our guidance for fiscal '13. First, the inherent risk in predicting the timing and rate of adoption in our innovation strategies; second, macro risks associated with budgets, funding, ops (tempo), recession, sequestration and the like; and third, timing risks associated with government-ordered delays, probably exacerbated by the sequestration overhang. Taking these risks and opportunities into consideration, we still expect our fiscal '13 revenue to be $348 million to $370 million, dully diluted EPS of $1.41 to $1.51 per share consistent with our previous fiscal '13 guidance. We plan to deliver $15 million of current small UAS backlog to international customers in the third month of our second quarter. There is some additional timing risk associated with the administrative process of concluding international deliveries that could slide these shipments planned for Q2 into Q3. If these shipments are delayed, that would shift about $15 million of revenue to Q3 putting Q2 revenue at about $70 million to $75 million. In that case, about 64% of our fiscal '13 revenue would be in the second half. As usual, we're keeping a close watch on developments in Washington, DC and with our customers to discern any potential impact on our fiscal '13 plan. Our team is performing and supporting our customers well. I believe we have a growth strategy that works, is particularly, advantageous for the environment we're in. We're on track for the year in investing to establish a strong foundation for long-term growth. Thank you for your interest and now Jikun, Tom and I will take your questions.

(Operator Instructions) Your first question comes from the line of Michael Lewis – Lazard Capital.

So we have about 70% of revenue at the midpoint that's right now around $250 million according to guidance. I was wondering if you could provide us with a little more detail into the proportion of the split between UAS and EES contained in that visibility that you have right now.

Mike, we have not made a practice of breaking down the revenue guidance between the two groups. Although, I think we have said that we expect growth this year in our EV products line, which is essentially – represents the EES segment at this point.

Mike, I can provide a little more detail but it's not by business segment. It's by how we have categorized it in our Q4 call. It's $58.7 million of actual revenues, $98.4 million of backlog, $29.3 million of Q2 bookings to date, $43.5 million of GFY12 to go and EES running at flat over last year of $20.9 million which adds up to about $251 million.

Did I read the press release correctly when it looks like, was it a $3 million actual revenue slip that you saw in the quarter as a result of the contract timing? And if so, did you already recoup that revenue? Has it already been delivered or are we still waiting for it to ship out in Q2?

Let me put a little more color on what I intended to say there, Mike. We expected when we went into the quarter that we would have revenue about the same as our first quarter of last year. And we ended up with revenue that was about $3 million less than the first quarter of last year. And the principle difference between what we expected and what we ended up with came down to a contract that we expected to have in place and deliver on in Q1 that slid out. That has not actually closed yet but we still are comfortable that it's within the year and won't affect our total revenue.

The next question comes from the line of Jeremy Devaney – BB&T Capital Markets.

Wanted to quickly touch on cash; free cash flow is the largest single quarter decline since you guys have come public and ARs are running extremely high versus prior Q1. I was wondering if you could give us a little bit of detail on what's going on in the collections side of the business and if you're seeing anything in particular then that we should be aware of.

Yes, so our free cash flow was down roughly $20 million driven primarily by working capital. Actually, the impact was more on the liability side. We had two large accruals that we did at the end of the year, one for taxes and one for bonuses that would drive the accounts payable or the current liability side down. Now, on the AR side, we did bring our receivables down roughly about $10 million, so that would put our collections in the quarter at $70 million, which is pretty good. But due to the billing and the timing of the shipments, our accounts receivable balance at the end of the quarter is at roughly $73 million.

Then during the discussion you guys mentioned that switch blade was going to grow year-over-year. Looking at the Q1 $5 million booking, do you expect to see bookings of similar size in each of the remaining 3Qs? Do you think $15 million to $20 million in switch blade annual run rate is achievable this year?

Well, we do continue to expect that switch blade revenue will grow this year over last as it did last year over the prior year. That – and everything that we see from our customer community that's interested in this capability continues to support that expectation. We do expect to continue to see more bookings and to ship many of those within this fiscal year. I don't want to get into predicting particular quarterly revenues, but we're still very bullish on the potential of this new capability.

The next question is from the line of Greg Konrad – Jefferies.

When looking at the proxy and the goals that were set in terms of revenues, there's quite a big divergence with the guidance and the numbers in fiscal year 2012. I was just curious about what that divergence was from and if you guys have set similar lofty goals for 2013.

Yes, you're talking about the …

Performance goals.

… internal performance goals that we set. Internally, we – the entire organization is really focused on sustained long-term growth where – as you know, our core strategy is based on innovations that produce new solutions that then become adopted and essentially create new niche market opportunities that we can grow with. The – we set our goals internally before the year starts and we go through a process that goes bottoms up and top down and iterates. It's a reflection of the growth objectives of the business and the intent is to end up with a plan that is a stretch but considered achievable by the people that are executing the plan and that's the basis of our internal goal setting. And in essence, we would rather aim high and miss than aim low and hit. We provide guidance in our fourth quarter call. By that time, we're already into executing our plan. We have a little more visibility. What we do at that point is try to set guidance where we have stripped out the upside opportunities that we're pursuing but aren't in the most likely part of the plan and we try to risk adjust the plan for those areas where there's more schedule or capture risk so that we can provide guidance that we believe we'll have a high level of confidence in executing throughout the year because at the point we're discussing guidance with investors, we would rather be conservative and make sure we don't have to change that in a negative way than take a more aggressive posture. That results in what you saw in the prospectus which is achieving our guidance, I think last year at the high end on revenue, and still underachieving our internal goals. So long answer, I know. I think the question was did we do that again? Of course, we'll disclose retrospectively in next year's prospectus what the internal goals were but I think I've described the philosophy of the organization and I don't think we have indicated any change in our strategy or our philosophy.

For EES margins, they seemed to recover quite quickly from Q4 and I know you've talked about progression of those margins getting back up. Is what we saw in Q1 the new run rate and is that sustainable for the rest of the year?

Well, I don't think, again, we want to predict gross margin. We try to limit our guidance at this point to revenue and EPS. But it is – what we saw in Q1 is consistent with what we have been expecting ever since Q1 of last year which was a recovery of the gross margin of that business, which was initially very low in Q1 of last year as a function of the introduction of multiple new products as well as a specific fixed price development contract we had with a government customer. So we have seen that continued improvement. We're back, I believe, in a range that's similar to what we had previously been expecting and I think we are well through the introduction of that surge of new products we saw last year.

The next question comes from the line of (Tim Cronin - Stevens). (Tim Cronin: Tim , how do you think about our plan for bookings in the third quarter and fourth quarter of your year given the CR and the talks of sequestration? Does your guidance range allow for enough variability in the outcome of what bookings might look like or are there scenarios where just because the risk you mentioned that you fall shy of that guidance range because of the way bookings shake out?

Well, we think we have captured the reasonable range of risk that we can anticipate and I haven't seen anything in the last quarter that changes that. So certainly we're not looking at the statistical tails of the distribution. That's possible. But I think in any reasonable way that we can anticipate the effects of sequestration I think we're still within our guidance range. (Tim Cronin: Then on specifically on Puma, I guess by my count, adding it up and your fiscal '12, the Puma product line may have been around $100 million revenue contribution. It was a big year for Puma regardless. Do you anticipate – and I know you don't like to get into product level guidance – but is that something you think about as a hole to fill in fiscal '13 with other products or do you think that that can stay relatively flat?

Well, as you anticipate, we try to avoid getting into product line specific projections. However, you'll notice that when we talk about the areas we expected growth this fiscal year, they are international, small UAS, switch blade and our EV products. So I think you certainly can infer from that that we're not planning on Puma driving growth in this year. Nevertheless, it continues to be a very productive tool in relatively high demand and with a growing interest with multiple customers, so a key part of our family of small UAS.

The next question comes from the line of Noah Poponak – Goldman Sachs.

So the – within the context of the items you've identified that you still have to capture, the slightly less than $50 million from the fiscal '12 budget – I'm assuming that's the remainder of Raven – can you maybe just talk about the risks around that one specifically because that's one that took a while to come through in terms of the – just the initial contract and the initial task order. It took significantly longer to come through than you originally expected. So what's the risk that as we move into another CR in addition to the sequestration overhang period that that one slips out of the year?

I – at the risk of prognosticating here, I don't see that as a significant risk. We are in the contracting process. There have been significant amounts already put against that contract and nothing's going on in that process that's unusual or would suggest to me that it's at any risk of sliding out of the year.

Back to the free cash discussion, what is the – where do you think total free cash flow will shake out for the full year?

Again, historically, we've seen about 90% conversion on a typical year. Now, obviously it depends on the fourth quarter revenues and the billing associated with it and when we collect against that. But at this point in time, that's probably a good assumption with this.

I feel like I – if I'm reading my notes correctly here from the last call, the discussion was that there was some abnormalities in the full year fiscal '12 that caused free cash flow and full year fiscal '12 to be just above break even and that you thought full year fiscal '13 would be in the ballpark of your normal conversion rate plus the accumulation of what you came up – of the degree to which you came up short in fiscal '12. Did I hear that incorrectly or has that changed? Or why would you not experience that catch up?

I think you heard that correctly. What you're seeing is the timing effect of the revenues within the quarter and the shipments of the products in the quarter. Again, if we have a back-end loaded fourth quarter, you might see that kind of cash flow replicating itself in FY13. But at this point in time, we don't expect that.

Just last one on global observer, is there any difference at all in the way you're thinking about the program now than you have over the past, I don't know, six, nine, twelve months, any new thoughts on partnering with others that are working on similar products or any incremental discussions with potential international customers, anything you can tell us there at all?

We're pretty much with the same story on global observer as has existed for the last number of months and that doesn't mean to say that any or all of the areas you suggest aren't in the mix. We're actively engaged with multiple potential customers pursuing the production adoption of global observer and we continue to believe that that will happen and we continue to be reluctant to predict the timing.

The next question is from the line of Patrick McCarthy – FBR.

I was wondering if you could just give us some kind of flavor on what the quarter looked at via industrial beyond road and almost everything else if that's possible.

Well, again, we are continuing to avoid getting into breaking out revenues by product line.

I’m sorry, I don't want what the revenues were but I think last quarter you were talking about the industrial business being relatively weak thinking about a pickup in on road. Is that still what's happening in the marketplace?

Yes, so we did see – this is a year-over-year comparison of Q1, so we did see EV solutions, which would be the passenger and fleet electric vehicle charging systems remain a little stronger and industrial and electric vehicle test systems being a little weaker in the quarter.

Then more from a macro perspective …

Patrick, I just say that that's a quarter-over-quarter comparison and I don't know our quarter-over-quarter – year-over-year by quarter and not necessarily a projection of how we think the mix would end up over the year.

Keep in mind the – I think Tim mentioned in his prepared remarks the Seattle-Tacoma Airport, GSE, the ground support equipment, that is considered a part of the PosiCharge product line family and so we do expect that to contribute significantly in FY13.

Can you give us a sense as to whether there's other opportunities like the Port of Seattle out there that you're either bidding on or feel close to being bidding on?

That aspect of the PosiCharge product line or that segment of our PosiCharge product market has – is one that we've been involved in from very early on in our entry with that capability. So we are installed in multiple airports across the United States where we have some footholds in international airports and there's an active business development process that's ongoing in that as well as the other product lines there and with numerous customers in various stages of making procurement decisions. So it's an active, robust area that we expect to continue to grow.

Then just one more quick one on Mantis. Is there any data you can provide to us to just give us a feel as to how the pull through has been so far on that product or where you kind of feel like you are maybe relative to what's in your backlog or any data that you can provide that would be helpful?

Well, all of the customer evaluations that had gone on with this new capability prior to its acquisition produced very positive feedback. It dramatically improves the degrees of freedom that an operator has to collect information and to use the system in multiple scenarios. They're not in the field yet. We just have begun to get the contracts and get ready to start shipping these, so we don't have field – they're not deployed, so we don’t have information or pull coming from the field yet. But as these systems get distributed and users begin to get that experience, I would be surprised if they aren't delighted with the improvement in the safety and force protection that can provide as well as their efficiency. In the past, that has generated considerable demand.

The next question comes from the line of Andrea James – Dougherty & Company.

Did mission services grow in Q1? And also on mission services, do you think the intelligence community will continue to broaden your addressable market from a services standpoint?

Well, as we mention on our last call, Andrea, we saw significant growth last year in mission services and we believe that that is a long-term significant growth opportunity for us. I want to get away from identifying specific revenues by product line, particularly by quarter. But we see growing opportunities there, not only with our conventional defense customers but multiple other customers, both in the US government and internationally. It has this – the characteristics that I described in my earlier remarks of enabling customers that aren't structured and don't want to structure themselves in ways to support large scale hardware acquisitions and complex support and training operations and sustainment and still get the advantage of the situational awareness with the flexibility of services contracts. So I believe it'll be a broad market with multiple customers over time.

And then congratulations on the positive press on the (Molar Robot). I was just wondering if that's – is that proof of concept? Is that developed in response to a customer request or just something that you guys always have – I know you have a lot of pokers in the fire developing new stuff.

I think it's in the category of there's always something interesting going on in the R&D labs around here and every once in a while something pops out on us that gathers surprise and interest from the public.

What was it that kind of got people talking about that one in particular?

Well, it's the – I think what drove the initial development was the potential of long endurance autonomous data gathering in what turns out to be a large part of the planet that doesn't have a lot of data available to it. As to what generated the interest, I think there's some argument that might be the grateful dead background music. Luckily they've opened the intellectual property portals to their music and so our engineers apparently took advantage of that.

The next question is from the line of Michael Ciarmoli – KeyBanc Capital Markets.

Tim, so just refresh my memory. In EES the fall on a sequential basis from 4Q to this quarter of 26%, I think you're targeting flat, what are the puts and takes to get those revenues up going forward on a sequential basis? Are there risks involved with some of the shorter cycle PosiCharge businesses, just trying to get the degree of confidence there and your visibility in those EES revenues I guess?

Well, overall, we continue to expect that business to grow year-over-year in FY13. But I think there was a miniscule growth this quarter as well.

Year-over-year. I think he's talking about Q4.

Mike's talking about Q4, yes. I think that's just back to our cyclical timing and I don't think there's anything more to the Q1 issue than that, Mike.

Then from a strategic standpoint, I guess, the budgets are getting tight, funding's getting tight. What are you seeing on the competitive front out there? I mean, are you seeing new entrants? It seems like every defense contractor these days has some variant, multiple variants of unmanned aircraft. Just if you can maybe give us a sense of how these new competitions as you're going about trying to get new business especially on an international front, what you're seeing maybe now versus 12 months ago.

Well, I think one basic driver is unmanned airplane systems have been a high growth segment of the defense community for a number of years. I think the general conventional wisdom is going forward even in a highly constrained budget environment, unmanned airplane systems will remain a defense budget priority. So it would be unusual if that didn't attract increased attention. But even with that, in the four competitions that have been held in our particular space for small UAS over the past number of years, there have been up to two dozen competitors in those competitions, many of whom are still active competitors. Others have come and gone but I think it's mostly a reflection of the sustained demand and the projected sustaining of that demand for the UAS capability that attracts people.

You mentioned the Denmark order. Is there any way you can help us get an understanding of the magnitude or size of some of these international opportunities that you're targeting out there? You've obviously picked off the biggest market with the US but I think it's underappreciated how large some of these other customer orders can be. Is there any way you can help us with that?

It ties back to your original question in terms of the level of competition that we've seen in the marketplace. In the US you would argue that because of our position with the US Army and our reputation in the marketplace that competitions – competitors would have a more difficult time to take us on head to head. In the international community, that advantage doesn't necessarily translate and we do see greater competition in the international arena on a regular basis. Having said that, I think we've been pretty successful in competing against international and domestic competitors in the international front on a regular basis. In all cases, we try to go back to our customers and get their support for releasing that we've won and order and try to frame the size and the – and qualify that order as best we can. In the case of Sweden, recently we've won an order that I think we announced somewhere north of $9 million. In the Denmark order, we can tell you that it's related to a small family of systems but I can't, for customer reasons, can't disclose the size of that order to you.

In terms of the size of the market, Mike, I've seen – and you probably have as well – multiple studies of the potential size of the international demand for UAS and most of those that I've seen at least seem to point to international demand at over 50% of the total and probably even a growing percentage going forward. Whatever that percentage is, the fact that that could be a growing percentage going forward does seem to make sense to me because the US was such an early adopter and most of the acquisition patterns and adoption patterns we've seen outside of the US are following a similar patter, a similar process of evaluation and then determination of requirements and then budgeting and then acquisition process, all similar to the initial process in the US just five plus years later. So it would make sense that over time that percentage of adoption would shift from the dominance in the US to a greater and greater percentage internationally.

The next question comes from the line of Mike Greene – The Benchmark Company.

In the senate appropriators FY13 budget mark up it looks like the Army Raven was fully funded but was moved to (OCO). Do you have any color on why this might have been moved?

I think we're all shaking our heads without a good answer for you.

On the EV side, Tim, you mentioned in your prepared remarks that you build and operate and the back end of the EV Go network. Would it be fair to say that a sizeable portion of your revenues of the EV Go network come from the back end operation in addition to the actual install chargers?

Well, we anticipate backend revenue potential on these networks but I think to date the bulk of our revenues come from the hardware, software and installation upfront.

The next question comes from the line of Tyler Hojo – Sidoti & Company.

Just going back to the global observer program, just wondering if you're currently internally funding that program to any degree and, if so, if you can maybe talk about it a little bit, maybe what the expense was in the quarter.

We do continue to support global observer with internal funding. A lot of our effort has been focused on adapting solutions to potential customers as well as optimizing our production systems so that we're in a position to translate the development into a production capability. Our – we have funded that program for years initially through internally funded development of the technology and the capabilities and then we co-funded, continued to co-fund along with our customer funding the JCTD program. So I would expect that our internal funding would continue to wax and wane consistent with customer funding but we will continue to pursue the adoption as long a we're convinced that it is likely to translate into significant growth in the future.

Then just a clarification, I think you said Q2 sales were targeted in the $70 million to $75 million range. And I’m just curious, is that inclusive or exclusive of the $15 million international UAS shipment you spoke to in your prepared remarks?

We think that revenue range would be the result of that $15 million or so of international revenue sliding out of our plan for Q2 so that if we didn't realize that delivery risk it would be about $15 million higher.

I was looking for the unfunded backlog number, how far along we are on the Army's plan buy of Ravens and the customer funded R&D number.

Unfunded backlog is $82.1 million, sorry, shuffling through my books here. Project R&D was $6.6 million and the Army acquisition objectives, we are 76% at 1802 systems.

The next question is from the line of Michael Lewis – Lazard Capital.

I wanted to follow up on Patrick's question of the Mantis. Would you expect the production to fall in similar to how the DBL upgrades came in during the past when we were seeing that flow through?

I don't want to say it would be similar to that pattern, Mike, only because I don't have insight into our customers' budgets. And until – that probably gets affected by what happens with their available funding. But what I do expect is as that capability gets into the field, I would be surprised if there wasn't significant pull through from operators for more of that capability and that's what we saw with the digital data link. And so to that degree, I think it's very similar. It's just hard to predict how fast they – assuming that demand accelerated as I'm suggesting, it's hard to predict how fast the Army could react to it.

Then shifting gears back to the international order, what are the milestones that you have to meet, deliver that $15 million during the second quarter versus seeing it slide out to third?

Well, it's typical with – to a large degree, the delivery requirements are typical to our US government customers that require acceptance tests, processes and flight tests of the equipment. But there are export issues associated with international that's not associated with US government and it's a little easier for our US customers to observe the flight tests and meet those, get those buy off requirements by having personnel available physically at the flight test facility. So that – the combination of the export issues letters of credit and the physical observation of flight test all add a little more risk when we're dealing with international customers.

There has been a number of (AeroStat) programs that have been either reduced or cancelled. Do you think that this will actually improve the prospects for GO? Has the customer come back to you in discussions as a result of these cancellations, and these are the high altitude (AeroStats)?

We internally concluded long ago that fixed wing solutions for high altitude, long endurance applications would dominate lighter than air solutions. Now, that's our technical evaluation and I guess in the vernacular, that's our story and we're sticking with it. Most of the actual test results that I've been able to observe from afar seem to support that initial assessment. To what degree customers will ultimately come to that same conclusion and to what degree that translates into increased interest in fixed wing solutions like global observer is something that we've been counting on based on our internal technical assessment. But I’m back to the difficulty of predicting the timing of adoption.

The next question comes from the line of Jeremy Devaney – BB&T Capital Markets.

Tim, I want to continue down this line of the global observer. Have you guys made any progress in gaining control of (inaudible)? It's my understanding that the customer continues to own the asset at the end of JCTD? And then also, you applied for an air frame, air worthiness certificate for the second air frame. Does this imply that you're trying to fly it in the near future and are there going to be any (IRN) dollars spent in bringing it to full completion?

Well, a couple of questions there; in terms of connection between the FAA and near-term flight tests, I don't think there's a direct link to be made there. We are – we do intend to put airplane number two back in flight test but I think the timing is associated with our pursuit of production adoption. We are continuing a dialogue with our customers on airplane number two. We expect that to be resolved "as soon as we can manage it." And again, I'm not able to give you a specific prediction of timing. But that's where we're headed.

If we could to the Raven for a second, have you made any significant progress sense the Raven (UCA) contract to bring that full contract to definitization? And the reason I ask – I know we discussed it a little bit earlier – is under sequestration, unobligated funds are going to be swept up at the end of this calendar year. And so if you're not under contract with them in the next four months, those funds are at risk of being swept up and going away. Can you give us a little more clarity as to where exactly you stand in the contract process and how much urgency you're getting from the customer to come to completion on definitization?

As in the past, we've taken a number of contracts via the (UCA) process with our customers. In all cases, and in this case, we're under contract for the entire order. It's a matter of definitizing the contract and gaining full funding. To the extent that there's some risk associated with that, I could guess that we would accept that risk. But from our perspective – I think Tim said it earlier – we don't view GFY12, the finalization of GFY12 orders being a significant risk to the plan for the year.

The next question comes from the line of (Tim Cronin – Stevens). (Tim Cronin: I'm trying to figure out where you're – or maybe you can tell me where your break even point is and I'm thinking relative to your revenue guidance for the second quarter at the $15 million order is pushed out. That's $75 million. Is your break even point $65 million in revenue or $70 million in revenue? Where exactly is it?

Well, I don't know that – I'll let Jikun decide whether he wants to make a forecast, but retrospectively, I'd say our break even point in the first quarter was about $0.06 below our revenue.

Historically it's been in the $60 million to $65 million revenue range. Obviously it's a function of many things, gross profits achieved, G&A and R&D investments, (netting) that out. I think we're probably going to stay away from guiding EPS in the second quarter and we'll leave it with $75 million with potential upside.

$70 million to $75 million.

My apologies, $70 million to $75 million range with $15 million upside to that. (Tim Cronin: Then just lastly, GCON, missed when you went through the components of visibility, I got the revenue in 1Q and the backlog of $98 million and the $29 million of bookings to date but I missed the last couple of items, the remaining Raven expected orders and the EES orders to get to flat.

So it's not just the Raven. It's all of GFY12 balance, right, on the Raven. So that's roughly $43.5 million and then EES to run flat would be $20.9 million. (Tim Cronin: Does that – maybe I just wasn't adding it up right but I’m not getting – I'm getting $246 million.

So let's try it one more time. $58.7 actuals, $98.4 backlog at the end of Q1, $29.3 Q2 bookings to date, $43.5 million and $20.9 million. That should add up to … (Tim Cronin: Yes, I got it now. I apologize for taking everybody's time.

Thank you and that's all the time we have for questions. We'd like at this time to return the call to Mr. Gitlin for any additional or closing remarks.

Thank you, (Tyrone). Thank you all very much for your time and your interest in AeroVironment. An archived version of this call, all SEC filings and relevant company and industry news can be found on our website avinc.com. We look forward to speaking to you – with you again following next quarter results. Bye.

Thank you. That concludes today's conference call. Thank you for your participation. Good day.