Good day, ladies and gentlemen, and thank you for standing by, and welcome to the AeroVironment, Inc. Fourth Quarter Fiscal 2013 Earnings Conference Call. [Operator Instructions] As a reminder, this conference is being recorded for replay purposes. With us today from the company is Chairman and Chief Executive Officer, 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, I now would like to turn the call over to Mr. Gitlin. Please go ahead.

Thank you, Huey. Welcome to AeroVironment's fourth quarter and full fiscal year 2013 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 contents of this conference call contains time-sensitive information that is accurate only as of today, June 25, 2013. 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 our Chairman and Chief Executive Officer, Tim Conver. Tim?

Good afternoon, welcome to our fourth quarter and full fiscal 2013 conference call. The main theme of today's call is our adaptation to the uncertain markets we face today. My comments today will focus on 3 main topics: first, the review of Q4 and our fiscal '13 results; second, our fiscal '14 plan; and third, specific high-value market opportunities in addition to our small UAS business with DoD that we believe will deliver long-term growth. Jikun Kim will review our financial performance, and then I'll conclude with my view of fiscal '14 revenue and earnings per share, as well as our longer-term outlook. Before I dive into results, I'd like to take a moment to address the company's strategy in the context of our current market environment. Since the founding of our company in 1971, AeroVironment, like any company operating over decades, has learned to continually adapt to changes in the external environment. At times those changes provided us with an opportunity to expand rapidly, at other times those changes required us to dial back. In May, we took action to balance the dual objectives of maintaining profitability at current revenue levels, while also capturing and executing on growth opportunities. This led us to reduce our operating costs and realign the business units within our segments. I'll address both elements of this action -- of these actions later. We also reassessed our new business opportunities and our capital allocation. We have reaffirmed both, and as a result our growth thesis remains unchanged as described by the following 3 points: first, AeroVironment is a technology solutions provider, driving height, long-term growth through the delivery of innovative solutions for large market opportunities; second, we expect to maintain our market leadership in the existing markets where our previous innovations have already been adopted;…

Thank you, Tim, and good afternoon, everyone. AeroVironment FY '13 Q4 results are as follows: revenue for the fourth quarter was $54.1 million, decreased $56.6 million from Q4 last year of $110.7 million. Looking at revenue by segment, UAS revenue was $42.2 million, a decrease of 56% over the prior year. The decrease in UAS revenue was largely due to lower product deliveries of $31.1 million, driven by lower equipment [ph] deliveries and offset by higher Raven and Wasp system deliveries. We also recognized lower service revenues of $20.8 million, driven by lower DDL retrofits, training and mission services. And finally, we recognized lower customer funded R&D work of $3.1 million, driven primarily by lower activities associated with our Switchblade program as it transitions into product revenues. EES revenue was $11.7 million, a decrease of 12% from Q4 last year, primarily due to lower hardware deliveries and installation services of our electric vehicle test systems and passenger electric vehicle charging systems, all offset by higher industrial electric vehicle charging systems. Turning to gross margin. Gross margin in the fourth quarter was $17.7 million, down 64% from the fourth quarter last year. Gross margin, as a percent of revenue, was 33% versus 45% in the fourth quarter last year. By segment, UAS gross margin was $15.8 million, down 65% from the fourth quarter last year, primarily due to lower sales volumes. As a percent of revenue, UAS gross margin was 37%, compared to 47% in the fourth quarter last year. This decline was primarily driven by higher manufacturing and engineering overhead support cost. EES gross margin was $1.9 million, down 53% from the fourth quarter last year, primarily due to a write-down of inventories related to our EV50 products, and higher manufacturing and engineering overhead support costs. As a percent of…

Thanks, Jikun. The procurement delays we saw in fiscal '13 drove a more rigorous approach to our planning process for the uncertain market environments in fiscal '14. We dove much more deeply into underlying assumptions and where possible, we worked more closely with customers to understand their intent as well as their constraints. While we believe most of the orders delayed from fiscal '13 will be received in fiscal '14, we are also assuming continuing delays will push out many of the new orders we might have previously expected for fiscal '14. For fiscal year 2014, we expect revenue of $230 million to $250 million and diluted earnings per share of $0.35 to $0.50. The first quarter cost reductions that I described earlier should about triple operating profit relative to last year. And we assume none of the tax and convertible note impact we saw in fiscal '13. Historically, we have generated about 40% of our annual revenue in the first half of the year. Our first quarter revenue this year will probably be low on the assumption that the last increment for the government fiscal '12 Raven procurement will not be received until the second quarter. We have a proven history of adapting to an ever-changing environment while continuously innovating to help customers succeed. Our fiscal '14 plan is designed to maintain our market leadership in the Department of Defense's small UAS and in EES. We have the market positioning and the balance sheet to compete effectively for leadership in multiple, identified new market opportunities, including tactical missile systems; mission services; international small UAS; commercial UAS, including both public safety and border security; Global Observer; and electric vehicle charging infrastructure. We believe the combination of success in these new opportunities, while maintaining our leading positions in our current markets, will drive high, long-term growth. Remember, the inherent uncertainty of timing of the adoption of these new solutions requires us to be persistent, yet be prepared to move quickly and decisively when strategic opportunities arise, and having the dry powder available to do so could be the difference between higher and lower long-term growth. Successfully executing our business model would yield the highest return on capital. Thank you for your interest in AV. And now Jikun Kim, Tom Herring and I will take your questions.

[Operator Instructions] And our first question will come from the line of Josephine Millward with The Benchmark.

Tim, I wanted ask you, the Army issued an intent to sole source the Switchblade from you guys back in March. Can you give us an update on that. Have you received the first 79 [ph] systems? And when do you anticipate the additional -- the follow-on, I think, it's over 600 systems for each year for 2 option years?

Well, what I can tell you, Josephine, is the contract that we had said previously that we were anticipating in the second quarter of last year had its initial funding placed in the fourth quarter of last year, as I mentioned in the previous comments, and we've received additional funding on that contract the first quarter this year. I don't know that, that is the specific requirement that you're mentioning or not. There -- as I further expanded on Switchblade in my earlier comments to say that we continue to believe there is an emerging requirement for that capability and that we're optimistic that we'll see continued growth this year. But I don't know that I can talk about any specific contracts beyond what I've just said.

Can you give us a sense of what Switchblade's contribution was in fiscal year '13? Because it seems like in your guidance, you're assuming this is going to be a key driver, right?

Well, Switchblade grew about 24% in revenue last year over the prior year. We think it's possible that it will continue to grow beyond that this year. We have an expectation that there is significant long-term growth beyond that in front of us. So it's clearly an important program and an emerging new business area that we're very focused on.

Josephine, I think you are originally referring to the announcement in FedBizOpps about the U.S. Army's intention to issue a sole source order to AeroVironment, is that correct? So the answer to that question is, we have not announced such an order today.

And our next question will come from Andrea James with Dougherty & Company. Andrea James - Dougherty & Company LLC, Research Division: The first thing, can you unpack the $248 million contract? How much of that is in the guidance? And how much is remaining on that contract? And how much should, I guess, go to AV relative to the other 4 winners on that?

I think you're talking about the IDIQ, is that correct? Andrea James - Dougherty & Company LLC, Research Division: That is right.

Yes, so we received, several past quarters, relative to the IDIQ but -- and we've booked that in Q1. But I think from a data wise, about 90% of those have gone to AV versus our competitors.

That's correct. Andrea James - Dougherty & Company LLC, Research Division: That's really helpful. And then going back to the State Department RSP, my sense is that they took a look at what was out there and decided that it didn't exist in the iteration that they wanted it. Could you give us some more color on maybe what you expect them to do, and if you think you'll be even better positioned, maybe the next time around?

Well, we believe that we submitted an offer that was compliant with the government's requirements, obviously. I think that government's included to their rigorous evaluation process that no offer provided a solution that met all of their needs for both the Tier 1 and the Tier 2 solutions. We haven't received any specific feedback, as part of the debriefing process yet from the government, so we're not prepared to talk about the next steps. We can tell you that in that same announcement, where the government canceled the initial requirement that they reaffirmed their need for these capabilities and to proceed, we believe, with both Tier 1 and Tier 2 requirements. But I do think, Andrea, that we are confident that we have the leading small UAS capability in the world to bring to this requirement. And we are focused on delivering that level of performance to this customer.

And our next question will come from the line of Brian Ruttenbur with CRT Capital.

On the Global Observer, if you could maybe elaborate on your plan this fiscal year, what it is and what you're committing in terms of resources to that? And who the potential buyers are? If it's the U.S. government or if it's somebody else?

Well, let me tell you what I feel comfortable disclosing publicly from a competitive position, Brian, and I'll hope that gets close to answering your question. We did acquire the second airplane and the other assets that the -- from the government late last year. As I mentioned before, I think that puts us in a stronger position with more degrees of freedom to support potential customer needs in this area. We are primarily pursuing business and market development initiatives with multiple customers. They are not limited to U.S. government customers, and we believe that, in the long-term, we have a compelling solution to multiple enduring needs. I can't predict when that initial adoption will take place. I believe that when it does take place, it has the potential to be a significant material change to our business, and the fact that this requires persistence and -- is not surprising given the extent of the innovation and the change in perceptions that adopting a satellite that operates in the atmosphere requires.

Okay. And then as a follow-up, just real quick, it's about guidance. Can you talk a little bit about the breakdown of revenue guidance. It sounds like the EES is going to be flat, maybe around the $50 million market; the UAS, maybe $180 million to $200 million. And within that guidance, on an EPS line, do you include the one-time expense for the layoffs restructuring within that EPS guidance?

Yes. So I mean let me share with you what we've done in the past and see if this helps. So from a visibility standpoint, the revenue contribution that we expect for FY '14 from our back -- FY '13 yearend backlog is roughly $54 million, with -- both roughly $31 million quarter-to-date. If EES runs flat, that would be an additional $33 million on top of that backlog. And then the balance of our GFY '12 and a portion of our GFY '13 would contribute another $46 million, which would add up to 164, which is about 58% of the 240. The balance of that we would get from international SUAS, Switchblades and various other opportunities.

DoD.

Our next question will come from the line of Tyler Hojo with Sidoti & Company. Tyler Hojo - Sidoti & Company, LLC: Just a question on the breakeven. You gave us some color within the prepared remarks in regards to some of the cuts you've made, but could you perhaps quantify what the breakeven is today under the cuts that you have made? I think prior, you had indicated that breakeven was somewhere in the $50 million to $60 million in sales range?

Yes, so breakeven is a function of many things, as you know. Revenue composition, meaning cost plus contract versus price contract mix; services mix versus product mix, which all impacts gross profit percentages; as well as the investments required to sustain the business and grow the business, meaning G&A, as well as R&D. Historically, we have had breakeven in the $60 million to $65 million range. At the end of Q1, when we had made these cost-reduction adjustments, our breakeven is now $50 million to $55 million on a run rate basis. Tyler Hojo - Sidoti & Company, LLC: Okay, great. And I guess just as a follow-up, I mean, it seems like you're being pretty cautious in regards to the outlook, but how much more room is there to kind of take a harder look at cost? Maybe you could elaborate there?

Well, certainly if we wanted to focus strictly on maximizing short-term profits, we could significantly reduce our cost basis, but that's not the strategic intent of the business. We're focused on achieving significant long-term compounded growth. So we balanced our cost adjustments this year to maintain profitable operations at the revenues we think are likely to be possible, given the ongoing delays we see. And at the same time, continue to invest effectively to capture and secure the leading market positions in the half dozen new market opportunities that I described earlier in my conversation.

Our next question will come from the line of Michael Ciarmoli with KeyBanc Capital Markets.

Maybe, Tim, just a follow-up to an earlier question for -- or Jikun, the full year EPS guidance, does that include the associated kind of restructuring charges or not?

Yes, it includes the Q1 charges that we have incurred.

Okay, perfect. And then maybe, Tim, can you elaborate a little bit? You talked about the capital allocation. What is the capital allocation strategy going forward? I mean, have you given any thought to share buyback, increasing investment? I think you said you were making $4.5 million in capital investments this year, maybe if you could just give us a sense what you're going to do and -- with the cash and how are you going to deploy that?

Well, we have an ongoing -- I think our capital investments have stayed in the same general range. Historically, I don't think we anticipate anything significant on the base run rate to change there. The primary issue that the Board looks at on a regular basis is what to do with the -- what's the best use of the cash that the company has accrued through its operations. And to-date, we have consistently concluded that the -- some of the multiple new opportunities that we're pursuing, most of which that are currently on the table, I described earlier, have the potential to be adopted, and in a success mode, could be adopted earlier rather than later, and that a faster rate rather than a lower rate. And when those -- when we look at those success scenarios, we conclude 2 things: It will take significant investment to secure the adoption of some of those innovations and to secure a sustainable competitive advantage and leading market share as those adoptions grow out subsequently. To do that, we'll be competing, almost by definition, with much larger organizations with much larger resources, because the market opportunities we're pursuing are inherently large. So our advantage there is the initial innovation that puts us in a first mover advantage, the relationships with early adopters that come from that advantage and the ability to act decisively at the correct point in time as we near adoption to make what could be large and strategic investments to ensure that position. The return on a successful implementation of that strategy is, by far, the greatest return on our capital that we can achieve and the Board continually believes that the dry powder capability of the cash on the balance sheet for that potential application exceeds other uses. Having said that, we have continued to generate free cash flow and build that cash position. I think we certainly, if that were to continue before we use it, we're going to reach a point where we think we are comfortably able to execute that strategy with a cash that would be available in the future. And at that point, the Board, I'm sure, will look at alternative uses of cash and those certainly would include considering the options you mentioned.

Just a point of clarification, the $4.5 million was CapEx in the fourth quarter. Full year CapEx was closer to $12 million.

Our next question will come from Greg Konrad with Jefferies. Greg Konrad - Jefferies & Company, Inc., Research Division: Just to start, with the May announcement of the restructuring, I was wondering if you noticed any change in the environment since the last call? Or if this was something that had been kind of in the works for a while?

I think we have been -- ever since we saw the significant increase in contracting delays that materialized in our Q3, we have been looking very rigorously at our markets and reviewing the probability of the degree of extending those delays and, of course, that translates into revenue. So we've been focused on this from that point in time. It's taken us a considerable amount of time from the end of Q3 to the first month of Q1 this year to get that balance right between, first, assessing the probable revenue levels for fiscal '14, and then assessing the resources necessary to execute on the significant new opportunities for future growth, while still reducing our costs enough to remain profitable at those revenue levels. So it's nothing new that happened, it's just a confirmation that we believe this environment of delay will -- is not over. And we need to be prepared for it. Greg Konrad - Jefferies & Company, Inc., Research Division: And just kind of to follow up with that, you had impressive cash flow in the fourth quarter and it seemed like a lot of that had to do with working capital management. Was there a change in kind of what you do with accounts receivable and inventories? And does that kind of persist as we move into 2014?

Yes, I think what you saw was a sharp reduction in AR, quarter-over-quarter. It's -- and AR balances is really a function of the timing of the revenues that we generate in the quarter. If you have a back-end loaded revenue in the quarter, then you're going to have a slightly higher AR balance. I expect pretty flat performance during the quarters. In terms of inventory, our inventories, I think we declined by $1 million from $63.6 million to $62.6 million. A lot of that is a function of the high level of revenue expected in FY '13 prior to our guidance reduction. And we carry that with us now, and we're looking forward to GFY '12 and some other opportunities to clear that inventory.

Our next question will come from the line of George Price with BB&T Capital Markets.

Just, first of all, you mentioned the fiscal 1Q '14 revenue being low. I was wondering if you could maybe be a little bit more specific about that. If you were and I missed it, I apologize. If you could repeat, but just, any more specific about what you expect in the first quarter in terms of revenue and perhaps profitability?

George, I prefer not to get more specific. I think my point was that, typically, we've seen about a 40-60 split in the first half, in the second half of our fiscal years some historically. And I just wanted you to be aware that it's not -- it's completely possible that, that first half won't be a 50-50 split because of the impact of the assumption that the last tranche of the government's fiscal '12 Raven contract will come in our second quarter and not the first quarter.

Okay, and just to clarify something. The -- you mentioned the Switchblade grew about 24% in fiscal '13 versus fiscal '12. And you've indicated that you think it's possible that you'll see growth in fiscal '14 beyond that. Just to clarify, did you mean grow faster, potentially grow faster in fiscal '14? Or could you stow some growth off of whatever the base was in fiscal '13?

Yes. I meant to say that we think it's very likely that we will see higher revenues in fiscal '14 on Switchblade than we saw in fiscal '13.

And just a point of clarification, I think Switchblade grew at 25%. And I think you said that in your prepared remarks and somehow there in the questions it dropped to 24%, so clarification.

Our next question will come from Andrea James with Dougherty & Company. Andrea James - Dougherty & Company LLC, Research Division: They're programmatic. So it seems that the military is so impressed with the Switchblade that they're flirting with the idea of attaching ammunition to Raven and Pumas. And I saw something about general dynamics and race you on [ph] or developing these munitions to maybe attach to your UAVs. And I guess, I'm just curious to get your thoughts on the potential there and whether or not that could be a needle mover?

I don't -- I think our focus, Andrea, in this area of munitions is limited to Switchblade. At this point, we do think that there are variants and other applications and other customers that are emerging as a result of the initial success with Switchblade itself. And that was what led us to readdress that whole business area as tactical missile systems beyond Switchblade itself. But that's our primary focus right now. Andrea James - Dougherty & Company LLC, Research Division: So always good, very helpful. And then, I guess, it became public in these recent news articles that the FBI is using Pumas for domestic surveillance and then the Navy is using Pumas for drug trafficking enforcement in the Caribbean. These seemed like new used cases to me, obviously not to you. And, I guess, I'm curious what your outlook for Puma, I guess in the near-term and the long term, is it sort of up, down or flat?

Well, I tried to characterize the outlook for our small UAS, in general, within the Department of Defense, as up, down or flat in the short term in my previous comments. And -- but if I go specifically to your question about Puma, that, as you know, is the largest platform in our family of small UAS. The larger size, it's still a hand launched airplane. But because it's larger, it can carry more payload. And because it can carry more payload, and it has larger, we get 2 things from that to deliver to customers. One is more endurance, so it flies at an increasing -- at a longer period, and the latest versions we're delivering now have increased their endurance by another 50% or so from the original versions. And the larger payloads allow both more information and different sensors to be incorporated. So that's what's leading to these increasing adoption and demonstrations by multiple new customers in different applications. Another characteristic of Puma is that it's all environment, that is it can on land or it can land in water. So that broadens the applications. And because it's the largest end of the small UAS, and has longer endurance and more payload capability, it can begin to encroach on the lower end of the next highest level of typical UAVs. So while it can't do all of the endurance and payload missions that a shadow UAV could do, for example, that the Army uses, it can do a lot more than a Raven can do. So when budgets get constrained and the smaller footprint and the dramatically lower costs might become more attractive as providing, for lack of a better term, an 80% solution at 10% of the cost.

Our next question will come from Brian Ruttenbur with CRT Capital.

Sorry for the follow-up, but just one quick question. On the first quarter, the expense that's included in guidance. Can you give us a range? Is it $2 million to $4 million? $5 million? Is it going to be in the SG&A line? Is it going to be broken out separately? Just trying to understand the quarter itself a little bit better.

Yes. So I think in our 8-K, we identified the severance expenses associated to reduction in force [ph] as being $1.1 million and it'll be a combination of overhead as well as G&A.

[Operator Instructions] And our next session will come from Andrea James. Andrea James - Dougherty & Company LLC, Research Division: On the Global Observer, I understand that you used to be maybe 2 years ahead of this Boeing Phantom Eye product. Now I was wondering if you can talk about whether that gap has closed, and also whether it's a reasonable assumption that you're aware of and going after the same customers that Boeing might be focusing on with its Phantom Eye?

Thanks, Andrea. Well, I can only make comments from our perspective, of course. We developed the first prototype for Global Observer, which was a 1/3 scale, liquid hydrogen, electric propulsion airplane, what? 6 or 7 years ago?

2005.

And then the Global Observer is a -- the full-size production version of our atmospheric satellite platform. The flight test that we've concluded were, I would say, a little over 50% through our base flight test plan at the end of the JCTD program, with 9 flight tests and up to 30,000 feet at about 20 hours duration. And that was in a flight test plan scheduled to systematically increase that envelope up to 60,000 feet and multiple days. So we're -- that's the position we find ourselves. And now the second airplane is 90% complete, the production capability to produce and deliver at about 5 airplanes a year is in place and intact. And we are prepared to move with alacrity from that position into initial adoption. So I don't want to characterize where our -- the Boeing Phantom Eye program is. I'll let them do that. But I think we remain in a position of having far more flight test capability and a preproduction capability in place for the demonstration of a full-scale operational system. And I don't know that, that characterizes any other capability in the world.

And presenters, at this time I'm showing no additional questioners in the queue. With that, that does conclude our time for questions. I'd like to turn the call back over to Mr. Gitlin, for any additional or closing remarks.

Thank you. And just before we sign off, we would like to have a little bit of information that Jikun would like to mention here for the purpose of the analysts.

Right. So from an EPS standpoint, the share count that you should assume for EPS is 22.75 million shares. And from a tax rate standpoint, at the midpoint, it should be 15% tax rate.

And with that, we'd like to thank everybody 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.

Thank you, gentlemen, and thank you, ladies and gentlemen. This does conclude today's conference. Thank you for your participation and have a wonderful day. Attendees, you may disconnect at this time.