Good day, ladies and gentlemen, and welcome to the AeroVironment Inc. Third Quarter Fiscal 2015 Earnings Conference Call. At this time, all participants are in a listen-only mode. Later we will conduct a question-and-answer session after management remarks. As a reminder this conference is being recorded for replay purposes. With us from the company is the Chairman and Chief Executive Officer, Mr. Tim Conver; Interim Chief Financial Officer, Ms. Teresa Covington; and Vice President of Investor Relations, Mr. Steven Gitlin. And now at this time I'll turn the conference over to Mr. Gitlin. Please go ahead, sir.

Thank you, Latoya, and welcome to AeroVironment's Third Quarter Fiscal 2015 Earnings Call. 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, 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 filed with the Securities and Exchange Commission. Investors are cautioned not to place undue reliance on any forward-looking statements, which speak only as of the date 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 content of this conference call contains time sensitive information that is accurate only as of today, March 3, 2015. 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. Tim? Timothy E. Conver - Chairman, President & Chief Executive Officer: Thank you, Steve, and welcome to our third quarter fiscal 2015 earnings call. Today I'll discuss our Q3 performance and highlight some of the important progress we've made. Teresa Covington will review Q3 financials and year-to-date results, then I'll discuss our outlook for the balance of the fiscal year before we take your questions. Our team continued to execute our strategy successfully and we delivered results in line with our full year plan. Q3 revenue of $68.4…

Thank you, Tim, and good afternoon, everyone. AeroVironment's fiscal 2015 third quarter results are as follows. Revenue for Q3 was $68.4 million, a decrease of $0.8 million or 1% as compared to $69.2 million a year ago. Looking at revenue by segment, UAS revenue was $58 million, an increase of $0.5 million or 1% compared to last year. The increase was primarily due to higher customer funded R&D work of $2.9 million, partially offset with lower service revenue of $2 million and lower product deliveries of $0.4 million. EES revenue decreased $1.4 million or 12% to $10.4 million in the third quarter. This decrease was primarily due to lower product deliveries of our electric vehicle test systems. Turning to gross margin, gross margin for the third quarter was $27 million, a decrease of $0.1 million as compared to $27.1 million in the prior year. By segment UAS gross margin increased $0.8 million or 4% to $24.8 million in the quarter. The increase was primarily due to favorable product mix. As a percentage of revenue, gross margin for UAS increased from 42% to 43%. EES gross margin decreased $0.9 million or 29% to $2.2 million in the quarter, primarily due to higher manufacturing and engineering overhead support costs, lower sales and unfavorable product mix. As a percentage of revenue, EES gross margin decreased from 27% to 21%. SG&A expense for the third quarter was $13.3 million or 19% of revenue compared to SG&A expense of $13.2 million or 19% of revenue in the prior year. R&D expense for the third quarter was $8.6 million or 13% of revenue compared to R&D investments of $5.2 million or 8% of revenue in the prior year. R&D investments increased by $3.3 million year-over-year. Operating income for the third quarter was $5.1 million or 8%…

Thank you. The first question is from Michael Ciarmoli of KeyBanc. Your line is open.

Hi, good afternoon, guys. This is actually Kevin on for Mike. Just wondering if you could give us any color on the – additional color, I guess, on the TERN program? And now that the first down-select is complete, what the company's working on there to get ready for the next down-select and whether you're still expecting that to occur in the next nine months or so? I think last quarter, you'd said give or take 12 months. Kind of where that stands now. Timothy E. Conver - Chairman, President & Chief Executive Officer: Sure, Kevin. TERN is the – a DARPA program that's intended to be a next-generation unmanned airplane system. It's a ship-based, vertical take-off and landing, medium-altitude, long-endurance platform. Five companies competed during Phase I, that was down-selected to two companies currently competing in Phase II. We do expect Phase III to be awarded during our fiscal year 2016. We're working on an innovative approach that we believe represents a high value and highly reliable means of achieving the DARPA objectives. We have a broad team of industry experts collaborating with us in developing and demonstrating this system design that our team has developed. And we think this puts us in a strong position for next-generation larger UAS solutions that I've said before is a priority for us.

Okay. Thanks, Tim. And then just looking at the R&D line, any color you can give us there in terms of how the mix has changed over the past quarter or so and kind of where you see it going in 4Q as it relates to specific programs or markets? Timothy E. Conver - Chairman, President & Chief Executive Officer: Well, our R&D, I think of it as being divided into three sections. We're running internally-funded R&D to support our core businesses. We are investing incrementally in internally-funded R&D to position ourselves for these three large emerging markets that we see adoption activity increasing within customers. And we conduct customer-funded research and development. And what – we've been building our R&D capacity significantly through the year. We knew we planned on incrementally increasing the investments for these growth opportunities. That capacity growth is both in terms of internal resources and developing additional external relationships that can execute R&D in conjunction with us. During Q3, we had a significant increase in customer-funded research and development activities. That competes directly with the same resources that we apply to our internal projects. And so, the balance of R&D that was allocated to the core business and R&D that was allocated to our growth opportunities accounted for the – a flat internally-funded R&D quarter-over-quarter. We expect to significantly increase our R&D in Q4. And our target, as I mentioned in my call, is to increase internally funded R&D by over 50%. This is still a delicate dance between allocation of scarce resources to multiple high-priority activities, but we think we're getting our capacity where we need it, and we're moving ahead with that intent.

Thank you. And the next question is from Tyler Hojo of Sidoti & Company. Your line is open. Tyler E. Hojo - Sidoti & Co. LLC: Yeah, hi. Thanks for taking the question. I guess the first one, just on, Tim, you mentioned kind of multiple RFPs coming in, just kind of similar to what you're doing with BP in Alaska. I was hoping that maybe you could just maybe just talk about the size of this near-term opportunity. And also what the competitive dynamic looks like. I mean, how many people do you think kind of offer a similar sort of offering? Or maybe just generally competing for the same work you are? Timothy E. Conver - Chairman, President & Chief Executive Officer: Let me maybe address the competitive issue first, Tyler, and then try to talk about the size of the operations. When BP put out RFPs for the services that they were interested in previously, they had multiple responses from many different types of organizations, including multiple UAV suppliers. In the final analysis, we were selected for all of the services exclusively. I think that goes to – that says a lot about a sophisticated organization doing an informed analysis of available capabilities and matching them to the needs of the organization. We continue to see multiple other companies, primarily companies with quadcopter capability in the commercial space. They're clearly great fun to fly, they produce wonderful video; they're carrying an increasing number of other payloads. But I think we find that large enterprises that are looking at integrating this capability into the core part of their operations are looking for reliable, safe, professional solutions that can operate not just when it's a pleasant day outside, but when their operations require it. And as a result, we've…

Thank you. And the next question is from Josephine Millward of Benchmark Company. Your line is open.

Hi, Tim. Timothy E. Conver - Chairman, President & Chief Executive Officer: Hello, Josephine.

Tim, given the limited visibility you have on the fiscal year 2016 budget requests, what do you see as the biggest drivers for AV in the coming year? Is it international? Is it the Switchblade? And do you expect the DoD to continue to upgrade those small UAS fleet? Timothy E. Conver - Chairman, President & Chief Executive Officer: I think the answer to all three of those questions will be yes, Josephine. Our pipeline and our activities in international business development indicate strong and growing demand. As I mentioned in my comments, the timing of contract processing for international orders is a little more difficult to be accurate about. But clearly the pipeline is there, and we think that will continue to grow. Interest and demand for Switchblade is increasing. We have obvious constraints in the budget, and it's a new program that needs to get adjudicated across theaters. But I think the demand for Switchblade itself, the strong interest in the variants that we're developing for Switchblade and the growing support within the army for a program of record for LMAMS are all positive indicators for future demand. As to the small UAS that you mentioned, I think the sustainment activities are likely to continue. There are other programs that appear to be driving upgrade demands in small UAS across DoD. And we have the new CPDs in both the Army and the Marine Corps for the family of small UAS that we think, although we don't know the specific timing of that, we expect to continue to see that to generating demand for Puma AE, Wasp AE and others in the future.

Tim, a follow-up on that. Can you expand on this U.S.-India technology transfer initiative? It seems like the Indian papers are talking about joint production of the Raven perhaps later this year and a multi-billion dollar pipeline. Can you give us a little more on that? Timothy E. Conver - Chairman, President & Chief Executive Officer: Yeah. I'll mostly reiterate the comments I made during my previous comments, and if that isn't adequate, then I'll follow up later. This is a strategic initiative between the governments of the United States and India, that's a joint defense technology transfer agreement. And this project for small UAS is the first pathfinder project along the way of what is anticipated to be a broad and growing defense technology agreement. The initial intent of this project is for AeroVironment and our partner Dynamatic's that we signed an MOU with in 2013 for the purpose of pursuing small UAS in India, and for the two companies to do a joint development and production program of a next-generation small unmanned airplane system. We're applying all of our technology and knowhow to this program. And our – Dynamatic's will apply their technology, their knowhow and their extensive aerospace manufacturing capability within India as we jointly develop this and then produce this in India. The initial intent of that production capability of this new design will be to address what we believe is a large demand within the Indian government. There's, I believe, something like 550 brigades in the Indian Army, which is one of the largest in the world, plus other police requirements. So, the potential requirement is quite large. The interest at the highest levels of the government seems to be real and on point. So we're in the process now of working with Dynamatic's, with the U.S. government and with the Indian government to finalize the terms of how we would structure this agreement and how we would move forward. And as we get that finalized and begin actually moving, then we'll report more to you.

Thank you. The next question is from Troy Jensen of Piper. Your line is open. Troy D. Jensen - Piper Jaffray & Co (Broker): Hey, yeah. Thanks for taking my question. Hey, Tim, just to put some numbers behind those R&D comments, so $8.6 million in the January quarter should go to $13 million? I'm assuming there's no externally funded R&D to offset that. Timothy E. Conver - Chairman, President & Chief Executive Officer: That's our target. And you could hopefully hear me hedging that a little bit. That's what we want to do. That's what we're planning on doing. And we have ongoing competition with our customer-funded R&D to accomplish it with the same resources. But that looks like an achievable plan at this early point in the quarter. Troy D. Jensen - Piper Jaffray & Co (Broker): Okay. Understood. And then on the R&D spend, are you guys doing any development in data analytics outside of capturing video, just to process and interpret what the camera sees (42:53)? Timothy E. Conver - Chairman, President & Chief Executive Officer: Excuse me. I missed the first part of the question, Troy. Could you try that again? Troy D. Jensen - Piper Jaffray & Co (Broker): Yeah. Just on the R&D spending. Is any of it going towards data analytics? Timothy E. Conver - Chairman, President & Chief Executive Officer: Oh. Yes. Yep, in terms of the R&D that's being applied towards our growth opportunities, it includes UAV platforms, payloads and the data analytics associated with much of the actionable intelligence intent of our commercial solution. Troy D. Jensen - Piper Jaffray & Co (Broker): All right. Understood. Last question and I'll cede the floor. With the proposed rules for UAVs, just curious to know if you think that the line of sight, there's going to be any type of constraints to growth here? Timothy E. Conver - Chairman, President & Chief Executive Officer: Well, to the extent that the existing constraint on line of sight stays in place, it does clearly limit the potential benefit that customers can achieve from these solutions. As I mentioned in my comments, we believe that a properly-defined solution with properly trained and certified operators can safely operate beyond line of sight. And I think there's probably room for ongoing discussion with this. Clearly, the FAA's intent is safety in the national air space. And there are huge potential economic benefits to optimizing these solutions. So we'll continue to work with the FAA and with our providing optimized design solutions to maximize safety in that environment.

Thank you. The next question is from Greg Konrad of Jefferies. Your line is open.

Good evening. I just wanted to go back to commercial UAVs. It seems like you're making some progress with BP and you mentioned that you had a bunch of other RFPs out there. So obviously without blanket rules in place, you have some flexibility to kind of go after commercial business. When these rules finally do get in place, what are kind of the biggest markets that open up after versus kind of some of the things you can do on a one-off basis today? Timothy E. Conver - Chairman, President & Chief Executive Officer: Well, we've been focusing, as we've described, primarily on large industrial markets that by nature are global, oil and gas, for example, agriculture, for example. Both of those appear at this point to offer very large global opportunities, and in both cases, the use of unmanned aircraft to capture digital data, process that data to generate concise actionable information that significantly improves the safety and the economics of the operation of the enterprise and as a result delivers significant return on investment. To the extent that that continues to be validated as we roll out these solutions with those and other industries like that, then these large projections of economic activity associated with commercial UAS seem quite plausible to me.

And then just to go back to electric vehicle charging, have you seen any impact in the business from gas prices? I know they've obviously been fairly volatile. And then just kind of the follow-up to that. Over the past three years, you've announced a number of kind of preferred relationships with different models of electric vehicle. What type of take rate are you seeing on that to help us kind of correlate sales of these vehicles kind of with AVAV products? Timothy E. Conver - Chairman, President & Chief Executive Officer: Well, we've had quite a difficulty in getting an accurate tie with EV sales and our attach rate because the mechanism for selling the chargers is not directly with the car. But consumers make their decision for charging infrastructure independent, and they make it in – with – not necessarily in the same timeframe. So, I don't have an accurate answer for our attach rate with you. We have clearly seen a decline in the last couple of months in the sale of plug-in electric vehicles. It's very early and it's hard to make a – determine what the correlation is with the price of gasoline. But one would suspect that higher gas prices would motivate higher EV sales. But I think it will be a few more months at the minimum before anyone makes an informed correlation decision there.

Thank you. The next question is from Michael Ciarmoli of KeyBanc. Your line is open.

Hi. Good evening, again, Kevin. Just a quick follow-up. Tim, just wondering what drove the increase in customer-funded R&D in the quarter. Was it – it seems like it was unexpected and I'm just wondering what kind of drove that. Timothy E. Conver - Chairman, President & Chief Executive Officer: Well, I don't think it was necessarily unexpected, Kevin. But there are multiple projects being funded by customers, most of which I will leave for the customers to announce. The nature of customer-funded R&D often can be sensitive competitive information, although the largest piece of that is the TERN program.

Okay, great. Thanks. That's all I have.

Thank you. The next question is from Joe DeNardi of Stifel. Your line is open. Joe W. DeNardi - Stifel, Nicolaus & Co., Inc.: Hey. Good evening. Tim, I'm wondering if you could talk about, given some of the issues or maybe the headwinds you're having with the EES business, does that business still make sense to have within AeroVironment? Maybe what are some of the synergies that flow through to the UAV business? And do you see that as an impediment to a potential acquirer not necessarily wanting the EES business? Timothy E. Conver - Chairman, President & Chief Executive Officer: Joe, we've got three product lines within EES. We have a leading market share position in each of those. Currently, the EV test product line is in decline. That's kind of a post-stimulus environment of over-capacity generated by the stimulus, and it hasn't really grown back yet. The electric vehicle industrial charging market is actually a growth opportunity of electric forklifts and other EV vehicles are continuing to gain share over IC engines. And we do have a strong position in North America in charging infrastructure for plug-in electric vehicles. That's not yet a significant revenue generator. But it has the potential to be very significant if and when the adoption rate of plug-in vehicles reaches even single-digit penetration in the overall car market. We don't expect that's likely to happen within the next few years. Or we do expect it will happen maybe within three years to five years. Overall, we have – we think given the strong position we have and the potential growth in those markets, it's a good option to have in the enterprise. There is a lot of synergy in the underlying technology. Both businesses are essentially focused on electric vehicles and much of the core technology in electric vehicles resides in our EES system. And we leverage the same kind of production and program management and strategic practices and systems across both. In general, the – owning and managing the EES segment has not been a diversion from the other growth opportunities in the UAS system. And we've always felt that if and when that happens, then we would reassess this. Joe W. DeNardi - Stifel, Nicolaus & Co., Inc.: Okay. Thanks, Tim.

Thank you. There are no further questions at this time. I'll turn the call back for closing remarks.

Thank you for your attention and for 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 www.avinc.com. We look forward to speaking with you again following next quarter's results. Good day.