Good day, ladies and gentlemen. Welcome to the AeroVironment Inc. Third Quarter Fiscal 2017 Earnings Call. At this time, all participants are in a listen-only mode. We will conduct a question-and-answer session after management’s remarks. As a reminder, this conference is being recorded for replay purposes. With us today from the Company is the President and Chief Executive Officer, Mr. Wahid Nawabi; Senior Vice President and Chief Financial Officer (sic), Ms. Teresa Covington; and Vice President of Investor Relations, Mr. Steve Gitlin. And now at this time, I would like to turn the conference over to Mr. Gitlin. Please go ahead, sir.

Thank you, Liz, and welcome to today’s third quarter fiscal 2017 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 include without limitation, any statement that may predict, forecast, indicate or imply future results, performance or achievements, and may contain words such as believe, anticipate, expect, estimate, intend, project, plan, or words or phrases with similar meaning. Forward-looking statements are based on current expectations, forecasts and assumptions that involve risks and uncertainties, including, but not limited to, economic, competitive, governmental and technological factors outside of our control, that may cause our business, strategy or actual results to differ materially from the forward-looking statements. Factors that could cause actual results to differ materially from the forward-looking statements include, but are not limited to, reliance on sales to the U.S. government; availability of U.S. government funding for defense procurement and R&D programs; changes in the timing and/or amount of government spending; risks related to our international business including compliance with export control laws, potential need for changes in our long-term strategy in response to future developments; the extensive regulatory requirements governing our contracts with the U.S. Government and international customers, the consequences to our financial position, business and reputation that could result from failing to comply with such regulatory requirements, unexpected technical and marketing difficulties inherent in major research and product development efforts; changes in the supply and/or demand and/or prices for our products and services; the activities of competitors and increased competition; failure of the markets in which we operate to grow; failure to remain a market innovator and create new market opportunities; changes in significant operating expenses, including components and raw materials; failure to develop new products; product liability, infringement and other claims; changes in the regulatory environment; and general economic and business conditions in the United States and elsewhere in the world. For a further list and description of such risks and uncertainties, see the reports we file with the Securities and Exchange Commission. The content of this conference call contains time sensitive information that is accurate only as of today, March 7, 2017. 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. And just a process check here, Liz, if we resume a report that there is significant echo on the call that may be causing some problems for our listeners. So I’d appreciate if you could look into that and see if you can do anything about that. And hopefully with that addressed, we will now begin with remarks from Wahid Nawabi. Wahid?

Thanks, Steve, and good afternoon. The three key messages today are; first, third quarter performance exceeded our expectations; second, high third quarter funded backlog of $128 million demonstrates continued strong customer demand for innovative solutions; and third, we anticipate growth this year and tactical missile systems and international small UAS and we’re excited about the availability of our commercial information solutions later this calendar year. On today’s call, I’ll review our third quarter financial performance and then provide an update on the progress we’re making to achieve our fiscal 2017 objectives. Teresa Covington, AeroVironment CFO will then provide a detailed financial review before I discuss our outlook for the year and confidence in our long-term potential for value creation. Following our prepared remarks Teresa, Steve and I will take a questions. Now a quick summary of third quarter financial performance, during the quarter we continue to execute our strategy successfully and achieve our objectives. Importantly continued strength and bookings an indicator of robust customer demand for innovative solutions produced our third highest scorer funded backlog ever of $128 million. This backlog combined with year-to-date revenue and bookings this quarter provides us with 94% visibility into the midpoint of our full year guidance, which Teresa will discuss in more detail shortly. Third quarter revenue up $53.2 million was above the high end of the range I previewed last quarter and loss per share of $0.09 was significantly more favorable than our expectations. Two factors contributed to the loss. First, revenue was lower than our breakeven run rate. Second, similar to our first and second quarter this year plan increases and sustaining engineering reduced gross margins compared to levels from last year. The loss was smaller than we expected mainly due to higher than expected revenue, favorable revenue mix and lower spending.…

Thank you, Wahid, and good afternoon everyone. Before I’ll review of our third quarter financial results, I would like to take a moment to express my gratitude and excitement at serving our stakeholders as Chief Financial Officer. I have been with AeroVironment for six years and have developed a deep understanding of our UAS, and EES businesses, while also developing a profound appreciation for our incredible team. I look forward to meeting our stockholders and the analysts who cover us. Now third quarter financial results. Revenue for Q3 was $53.2 million a decrease of $14.4 million or minus 21% from the third quarter of fiscal 2016 revenue of $67.6 million. The decrease in revenue resulted from a decrease in product sales of $16.6 million partially offset by an increase in contract services revenue of $2.2 million. Looking at revenue by segments, UAS revenue was $41.9 million a decrease of $19.2 million or minus 31% from the third quarter of fiscal 2016 revenue of $61.1 million. The decrease was due to a decrease in product deliveries of $21.5 million, partially offset by an increase and service revenue of $2.1 million and increasing customer funded R&D work of $0.2 million. EES revenue was $11.3 million an increase of $4.8 million or 74% from the third quarter of fiscal 2016 revenue of $6.5 million. This increase was primarily due to an increase in product deliveries of EV test systems and industrial EV charging systems. Turning to gross margin, gross margin for the third quarter was $19.4 million or 36% as compared to $26.6 million or 39% for the third quarter of fiscal 2016. The decrease in gross margin was primarily due to decrease in product sales margin of $8.3 million, partially offset by an increase in service margins of $1 million. By segment,…

Thanks, Teresa. We continue execute our strategy building on leading positions and our core business and moving our growth portfolio toward the significant long-term market opportunities were pursuing. We remain the leading supplier of small UAS to the U.S. DoD. Our international small UAS business is thriving. TMS is growing. CIS is poised for launch and we see great progress in EES. We’re also very much aware of the variability and our short-term financial performance due to uncertainties associated with customer adoption. As we have stated throughout this fiscal year, our results have been in line with our expectations. We’ve been preparing for our expected increase in revenue during the fourth quarter to achieve our full year outlook. We have been ordering long lead items in advance preparing documentation for export license request to the U.S. Department of State, building inventory and implementing additional efficiency enhancements across the organization. Even with our planning and preparation as our international business and the number of customers were servicing has grown our exposure to delays associated with contracting, exporting, licensing and even travel visa approvals have increased. As we look to the balance of the fiscal year with this exposure in mind, we now expect full year financial results at the low end of our previously stated revenue and earnings per share guidance range of $260 million to $280 million and $0.20 to $0.35 respectively. Once again our main messages today are, first, third quarter revenue – performance exceeded our expectations; second, high third quarter funded backlog of $128 million demonstrates continued strong customer demand for innovative solutions; and third, we anticipate growth this year in Tactical Missile Systems and international small UAS and we’re excited about the availability of our Commercial Information Solutions later this calendar year. Thanks to our customers who placed their trust in AeroVironment to help them precede with certainty. Thanks to you, our stockholders who trust us to create long-term value. And thanks to our employees for their continuous efforts to deliver on our commitments. Now Teresa, Steve and I will take your questions.

[Operator Instructions] Your first question comes from the line of Ken Herbert with Canaccord.

Hi, Good afternoon.

Good afternoon, Ken.

Hi, Wahid. Hey, I just wanted to follow-up specifically on the international growth you’re seeing within the small unmanned aircraft or the small unmanned systems market. I mean clearly seems like that’s been a real source of upside over the last few quarters. Can you provide any commentary specifically around risks to this from a timing standpoint? Have you seen it sounds like most of this obviously is in your backlog, but are you seeing any concern past sort of the fourth quarter of 2017 into fiscal 2018 around sustainability of this growth and any change recently in sort of the attitude amongst your customers since the election in particular internationally.

Ken, that’s a great question. The question that we think about and discuss and analyze quite thoroughly internally. Overall, as you know, our international sales this year in the past year as well grown significantly. And we expect this growth to continue throughout fiscal 2017. Given and knowing that we have significant revenue and growth in this space, the size of these orders and contracts are large in nature and the number – I would refer to as a hurdles that we’ve to go through in order to secure a contract to get international travel schedules arranged get these approvals for some of our customers to come for demonstrations and factory acceptance tests, as well as securing export licenses from our U.S. Department of State. Always is a risk factor and continues to be a risk factor in terms of the timing of those orders being transformed into revenue. And so for that matter, we do see those risks, as we’ve always seen and that has been the nature of our business. In regards to the prospects for the long-term we remain confident about our international small UAS business, I’ve said this in the previous earnings calls that our assessment is that the international markets for small UAS, is about 5 to 10 years behind the adoption curve of the U.S. domestic DoD market. And so that means that we believe in the long run, we will see more adoption of our products and need for our products internationally. And we look forward to that. However, the timing of those orders always is a tough challenge to predict precisely.

Thanks Wahid. Just as a follow-up to that. Are you seeing as much demand internationally on the services side as you establish sort of a foothold with the products and does that something that you’ve seen much of the upside there yet or is that really upside that could be coming here in the future.

So, pretty much Ken on all of our international customers, we not only provide to our customers with a family of systems or systems solution, but also services related to training and enabling their force just to be able to operate these systems effectively. So they can get the actionable intelligence that they need – they deserve to precede with certainty, as well as support and logistics services such as spare parts and a sustainment, as well as repair activities that goes beyond just the initial acquisition of system solution and services. And so usually, almost all of our international as well as domestic customers have a long life cycle with us beyond the initial procurement. And once we are into the sustainment mode we also get an opportunity to provide upgrades beyond just spare parts and sustainment.

Thank you very much I’ll stop there.

You’re welcome.

[Operator Instructions] Your next question comes from Joseph De Nardi with Stifel.

Yes, thank you very much. Wahid, I’m just wondering if you can talk a little bit about where we are kind on the this curve of reinvesting core earnings back into the business for some of the growth drivers. Is that kind of come to an end next year, I mean, you’re going to generate a decent amount of earnings in fourth quarter. So, I was think about what the run rate is for next year.

Joe, great question again, so our – as I mentioned in my remarks previously as well as today, our domestic U.S. DoD as you know, primarily with the U.S. Army we’re what I’d referred to as an sustainment mode. They have the number or the quantity of systems that our U.S. DoD customer believes primarily U.S. Army to maintain and meet the requirements that they had intended to achieve. And in the past several years as you know, we have been providing a significant amount of spare parts, repair activities and upgrades to our existing fleet. So beyond that, we have opportunity to sell and deliver new solutions for new requirements of our existing customers and new customers. For example, the Snipe UAB that I just mentioned in this call and also the last call is a new requirement by the U.S. Army for Soldier Borne Sensor, which we believe were positioned extremely well and we’re going to be delivering 30 systems for demonstration in evaluation. And beyond that we’ve been engage in the last year or two with U.S. Navy for the maritime application of our Puma AE system. So in the domestic market we continue to serve our domestic existing customers with sustainment and upgrade and we also continue to pursue new growth opportunities with new customers or existing customers or new products. And last we also believe that while the lifecycle of the first generation of UABs with the U.S. domestic customers is going to sometime come to an end, it will – we believe that it will initiate the procurement of what we referred to as the second generation of our small UAS solutions to our U.S. domestic customers. And that will take a little bit of time, however, we do look forward to that and we are working towards that opportunity outcome.

Okay, and then maybe just on the balance sheet with the plan for the cash, I mean, maybe on the commercial or enterprise side of the business, do you see yourselves as acquirers in that market or is it too early really to do that.

We, Joe, believe that the commercial information solutions or the commercial application of drones and software analytics, represents a very large but also a long-term opportunity. And we’re very much as you said at the very, very early stages of getting the right solution to the market for us. We believe that our existing solutions that, that we have demonstrated, and unveiled is disruptive and has a unique and compelling value proposition that has received so far very strong positive customer feedback. So we’re excited about launching that product and then we will be in a position to be able to test the market and then provide you with some updates as to what we expect in that market to happen. Related to the capabilities and acquisitions, we’ve always had the belief and the intent to fill the gaps of our capabilities when we find opportunities for acquisitions of filling that gap either in terms of a timeframe or cost, we could do it better and cheaper by acquisitions we will always do so. So far we haven’t come across any that we believe and the board believes that is right for a decision, an execution and implementation. I also personally believe that there is quite significant investments going on in the space and the likelihood of properties becoming available at reasonable prices, probably will improve over time with any other industry. And when we find those opportunities we are – we will not hesitate to take action and deliver the result that we expect to our shareholders.

Thank you.

I’m showing no further questions in queue at this time. I’d like to turn the call back to Mr. Gitlin for any closing remarks.

Thank you, Liz. Before we do close out, one question that typically comes up on the call for Teresa would be some indication of our expected CapEx this year and tax rate for the full year. Teresa, would you mind addressing that?

Sure. Regarding our capital spend our history at AeroVironment has been in the 2% to 5% of revenue range. Year-to-date, we’ve spent $7.6 million on capital, and I would expect our full year to be in 3% to 4% revenue range. Regarding our tax rate, we estimate our full year tax rate and we start with the statutory rate of our federal and state and then we have both a deduction for our federal R&D tax credit, and then we also mention that we had a reserve release in Q1 of 900,000. And so that would be our estimate of our full your tax rate is a combination of those factors.

Great. So with that, we will close out and we thank you all for your attention today 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, avinc.com. We look forward to speaking with you again following next quarter’s results. Good afternoon.

Ladies and gentlemen thank you for your participation in today’s conference. This concludes the program and you may now disconnect. Everyone have a great day.