Viasat Inc (VSAT) 2006 Q4 法說會逐字稿

Good day, ladies and gentlemen. And, welcome to the fourth quarter 2006 ViaSat earnings conference call. My name is Colby, and I will be your coordinator for today. [OPERATOR INSTRUCTIONS] I would now like the turn the presentation over to your host for today's call, Mr. Mark Dankberg, Chairman and CEO. Please proceed, sir.

Thanks. Good afternoon everyone, and welcome to ViaSat's earnings conference call for our fourth quarter and fiscal year ending March 31st of 2006. I am Mark Dankberg, Chairman and CEO, and I've got with me Rick Baldridge, our President and Chief Operating Officer, Ron Wangerin, Vice President and CFO, and Greg Monahan, Vice President and General Counsel. Before we start, Greg will read our Safe Harbor disclosure.

Thanks, Mark. Portions of this presentation contain projections and other forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995 regarding future events or the future financial performance of the Company. We wish to caution you: these statement are only predictions that may differ materially from actual events or results. We refer you to the documents the Company files from time to time with the Securities & Exchange Commission, specifically the section titled: factors that may affect future performance, in the Company's forms 10-K and 10-Q. These documents contain and identify important factors that could cause actual results to differ materially from those contained in our projections or forward-looking statements. Stockholders and others are cautioned not to place undue reliance on these forward-looking statements which speak only as of the date on which they are made. The Company undertakes no obligation to update, publicly, or revise any forward-looking statements.

Okay. Thanks, Greg. We're going to be referring to slides that will be available over the web, and we'll start with our fiscal year '06 fourth quarter and year end financial results, and then a business overview perspective, and after that Ron Wangerin will discuss financial results in more detail, and finally I will update our outlook and financial guidance and give a quick summary, and then we'll take questions.

We'll start with revenues, and sales for our fourth quarter were $118 million which is a new record for us, and that up 30% compared to 90.9 million for the fourth quarter of last year. For the full fiscal year, sales were $433.8 million which is another record, and that's up 25% over last year's record of $345.9 million. For Q4 non-GAAP earnings, non-GAAP, or pro forma earnings and earnings per share, are up compared to last year. Non-GAAP earnings grew from 7.6 million to 8.2 million which is an 8% increase, and non-GAAP earnings per share increased from $0.27 to $0.28, an increase of 4%. Non-GAAP earnings exclude amortization of intangibles due to acquisitions, and expenses associated with equity compensation, and we'll provide exclusive bridge data from non-GAAP to GAAP net earnings a little bit later.

Now we'll consider Q4 net earnings and net earnings per share. Q4 GAAP net earnings decreased to $5.8 million which is down 14% from 6.7 million in the fourth quarter of last year. And GAAP net EPS decreased to $0.20 per share from $0.24 last year. The decrease in GAAP net income is attributable to several factors including the timing of R&D tax credit recognition, a one-time $0.04 per share impact from acceleration of stock option investing, and a slight increase in amortization of intangibles due to acquisitions. Later on in the presentation we'll give additional information on our Q4 operating earnings and explicit bridging data from non-GAAP to GAAP net results and some more detail on the option compensation charge.

Non-GAAP earnings for the full year, fiscal year '06, are up from $23.3 million to 28.8 million, an increase of 24%, and from $0.83 to $1.00 a share, an increase of 20%, and both are records for us.

Finally, Q4 year-to-date net earnings and earnings per share, those are also up year-over-year. GAAP net earnings increased from $19.3 million to $23.5 million, up 22%, and EPS from $0.68 a share to $0.81 a share, an increase of 28%, also both records for the Company.

Okay. So overall, our fourth quarter and fiscal year end results are really good, and they're in line with our plans. Ron will go into a lot more depth on earnings and financials in a few minutes, but next I will give a quick topical overview of our business situation.

The overall key financial points are consistent with the record revenues and earnings that were just discussed. The record earnings also added to our record cash flows from operations: $52 million for the year as a whole, with 22 million of that in the fourth quarter alone. Our balance sheet is very strong with over $36 million in cash at the end of the period and no debt. We made good progress in reducing unbilled receivables in particular, offset somewhat by a little growth in inventory. In the conference call for last quarter we had said the new orders outlook was promising but depended on a number of individual fairly large contracts. And, that worked out well in the fourth quarter. Driven by the large Boeing, MSV, ground-based beam forming contract, we received a total of about $133 million in new orders and added $15 million to backlog. We'll talk more about the orders outlook later but still see good prospects to establish a record backlog over about the next three months.

Finally, we also announced a one-time charge during the quarter related to accelerating the vesting of certain stock options. Ron Wangerin will provide for detail on that point during his portion of the call.

Overall from a market outlook perspective, things still look pretty favorable. We'll go into more depth later. But, the summary is pretty positive. MIDS and MIDS JTRS, or MIDS-J, is our single largest current defense business, and the restructuring that the government has done on JTRS seems quite positive for us, adding some clarity and substance to trends that had already been emerging.

Over the past quarter or so we've seen positive developments in the information assurance market, too, associated with certification of our KG-255 gigabit Ethernet product, new KG-250 software releases and growing recognition of IP network security in advanced waveform] for JTRS. While the IP network encryption market will be very competitive, we see many opportunities in that the entry barriers to---for new entrants are high and growing. Also, it is increasingly evident how closely intertwined the information assurance technology is with the advanced IP networking needs for network centric warfare.

On the Commercial side, we're very pleased with the growth in consumer broadband and with WildBlue's performance in particular. It appears WildBlue has about the highest growth rate of any satellite broadband service in the world, not just in percentage terms, but in absolute net new subscribers per month. That reflects well on WildBlue as a service provider and also on ViaSat as a technology supplier. That's having a positive influence on the perceptions of other satellite service providers around the world, and the volumes of units we're producing are helping us build a better supply chain for our VSAT business as a whole.

We're continuing to add to the base of Commercial aviation, business jet, and maritime users of our Ku-band mobile broadband systems. User satisfaction has been good. We're seeing opportunities for growth there. The option of air to ground spectrum for the U.S. market is going to add some uncertainty for domestic commercial airlines. That's not a factor in either the business jet market or the international commercial aviation market which is where our business has been so far. Ultimately we believe satellite has advantage----advantages which could make it quite competitive in the domestic U.S. aviation market even given the air-to-ground presence should the U.S. market emerge in the future.

The VSAT networks market still very tough and is very, very competitive, but we're optimistic that our advantages from the consumer VSAT volumes and the new ECC chips for the so-called ACM mode of DVB-RCS will help us either maintain or improve our overall market performance there. Finally, the Boeing MSV ground based beam forming contract we won in the fourth quarter puts us in the middle of the opportunity to build hybrid space and terrestrial wireless networks which take advantage of the FCC's allocation of ancillary terrestrial complements or ATC spectrum. That's essentially a brand new market for us and one that has interesting growth potential. So overall, we're pretty happy with the markets that we've been targeting, the growth opportunities in those markets, and the potential for us to grow with them.

New orders for the quarter were strong at about $133 million, which puts us at about $443 million for the year as a whole. In that, fourth quarter results were driven by the large contract with Boeing for the MSV ground-based beam forming system. That's consistent with our discussion in our third quarter conference call. We still believe our pipeline is solid and should include a few lumpy, big new order events. Some of the major pending orders we've identified in the past include the MIDS, LBT, lot 7 production, international MIDS LBT production orders, additional MIDS JTRS funding increments, such as for the Airborne Networking Waveform and international MIDS-J participation and other scope changes or capabilities for MIDS-J.

As we mentioned before, the timing of such new orders are at the convenience of our customers, and it is a little hard for us to predict on a quarterly basis. Several are currently in process in various stages, and we're aiming at reaching record backlog levels over about the next three months. Of course if all these new orders are delayed significantly beyond our expectations, that could impact our outlook for fiscal '07. We'll talk more about our near term financial outlook later in the call.

We've used this next chart for the last few quarters to show backlog in the context of our quarterly run rates. And as we anticipated you can see that backlog did trend up nicely in this quarter, and as I mentioned before, we're aiming to achieve record levels of backlog in about the next three months or so.

Okay. Now we'll turn to some of the main business highlights in the past quarter. We'll start with our government highlights. Overall things have been nicely positive for our government business. Financial results were very good for the quarter, with strong revenues, margins, and earnings. Production deliveries of mid-units have been very good and our market share has been increasing. Total new government orders were a little bit light in the fourth quarter but okay considering the lumpiness of MIDS, LBT production, and JTRS funding. The lot 7 production award process is under way and would typically be awarded in the next month or two. The government recently announced some restructuring of its multi-billion dollar JTRS programs, and those changes are essentially consistent with the perspective that we already developed. Become more evident MIDS-J, the JTRS variant of MIDS, will likely become the first of the so-called JTRS clusters to reach production. The largest JTRS development programs which are cluster one for ground systems and the airborne and maritime or AMF program are being refocused to a little bit less expansive and more achievable set of initial capabilities.

In general, JTRS seems to be placing a little less emphasis on making the old or so-called legacy modes of operation and more emphasis on the forward-looking internet protocol, network centric functions that are needed in the future. In total, that's good for the MIDS-J program and creates a favorable environment for ViaSat. The time to market advantage that MIDS-J ought to have will make it more attractive to platforms that need JTRS radios sooner than the other programs will likely deliver.

Also, the emphasis on AP network---on IP network centric capabilities is important too. Other radio contractors have more experience in the older backwards facing legacy modes, and to those---and to the extent those were really defining the prior JTRS objectives we are probably less competitive, but as an example, if you look at the security modules for cluster one and AMF, they originally placed a lot more emphasis on security for the legacy waveforms. ViaSat's building the MIDS-J security module using the same underlying technology as in our high assurance internet protocol encryption products. MIDS-J was already heading in the direction of supporting the advanced IP network security. We received initial funding for the Airborne Networking Waveform increment for MIDS-J. We lead the network security work in the MIDS-J integrated product team with DLS leading the modem in our RF work. In summary, I think if you do a little research into the overall JTRS market, the status of the various programs and the competitive positioning of the various players, we think it supports the notion that the opportunities for MIDS-J and for ViaSat are much more apparent today than they were a year ago.

On the Commercial side we have good growth in our fourth quarter. The two biggest areas are satellite broadband and mobility. Consumer broadband, led by WildBlue's U.S. Ka-band system is growing very nicely. We believe we're doing well in shipments, in cost reductions and in infrastructure software deliveries. We also have several other robust networks including Telesat's Ka-band system in Canada and Ku-band networks in Mexico, Latin America,, the Middle East and Asia Pacific.

System performance has been very good, and WildBlue in particular has cited user satisfaction ratings well over 90%. We're very aware that satellite broadband has not had a good reputation in the past, but there is evidence we and our service provider partners are changing that. In April, WildBlue won a BBR gold star rating from Broadband Reports, the first ever for a satellite broadband ISP even though other satellite service providers have been around for almost ten years. Also just last week AT&T said it would distribute WildBlue to its customers outside the reach of DSL. A Rocky Mountain News article quoted AT&T saying that 20% of its 26 million residential customers currently could not get DSL. We believe given continued economies of scale, distribution, and technology improvements that satellite has an enduring and profitable role in broadband [inaudible] access.

The VSAT networks business as a whole is still very tough and very competitive. We believe we can compete well because of several factors. Consumer broadband has grown fast and shot past our very successful LinkStar business in terms of volumes. We're aiming to obtain enduring cost advantaging by leveraging those volumes. Also we're more highly integrated than any other VSAT supplier. USM, our U.S. monolithic subsidiary, has the lead in Ka-band mimics which are the microwave IC's and modules, and with the launch of new satellite capacity, Ka-band could surpass all other satellites bands for VSAT network in the next few years. Also with ECC we're now leading developer digital chips for two VSAT network standards. The DVB-RCS S2 and IPSTAR waveforms.

Finally, our strength with defense customers, which are important users of Commercial VSAT products, also is an advantage. Even though we're still not quite where we'd like to be in terms of financial results for our Commercial VSAT segment, we believe there are a number of factors that can tend to improve those results.

Mobility is another important market for us. Our Ku-band mobile products for aviation and maritime are doing well with good financial results. We're looking to enhance the products, reduce costs and increase market reach. For now we have a very, very strong position in the market for applying low cost Ku-band bandwidth in applications that have traditionally relied on much more expensive L or S band satellite spectrum. If we can grow that market, ViaSat should benefit significantly. We're working to get on smaller aircraft and into maritime and ground mobile, too. We're investing in a measured way based on results for our current products.

The Boeing MSV contract creates exciting prospects in the L-band MSS mobile business. MSV is developing a hybrid space ground network that extends the reach of conventional mobile networks into spectrum that had previously been only available for satellite, and that's through the so-called ancillary terrestrial component or ATC frequency allocations granted by the FCC. There are six different MSS services in the U.S. seeking ATC rights. There are multiple ways that this spectrum can be used, and we think our technology of various types will be very helpful. Stay tuned for further developments here.

Finally, we're very happy with results at US Monolithics and ECC. USM is leading the way in the Ka-band two-way market. We're making good progress applying that to military EA (indiscernible) and Ka-band products as well. Current price points in the defense markets are high, and we can be very cost effective. Also USM is making good progress in military phased array antennas and is becoming involved in the radio portions of JTRS and miniaturized weapons data links. UCC has brought a lot of very talented people and great technology to ViaSat, and they're already helping in VSAT networks, in the mobility markets and in the defense projects also.

At this point I would like to introduce Ron Wangerin, our CFO, who will discuss our financial data in more detail.

Thanks, Mark. We will start with results from operations reviewing segments first, then discuss the rest of the P&L followed by a discussion on the balance sheet and then cash flows. In the government segment, revenues for the fourth quarter were $54.4 million, a new quarterly record and a 14% increase over the same period last year. The increase in the fourth quarter is related to increases in UHF satcom product sales and MIDS JTRS and simulation product development sales, offset by reductions in information assurance product sales. For the fiscal year government segment revenues were $210.6 million which is a 20% increase over last year and also a record. Fiscal year increases are attributable to increases in tactical data link sales, principally MIDS production sales and MIDS JTRS development sales and simulation information assurance revenues offset by reductions in UHF satcom product sales year-over-year.

In the commercial segment, revenues for the fourth quarter were $64.8 million, a new quarterly record, and a 41% increase over the same period last year, and for the fiscal year commercial segment revenues were $229.5 million, also a record and a 29% increase over last year. For the fourth quarter and year-to-date we saw increased sales of our satellite network products principally due to the increases in consumer broadband production activity and the acquisition of ECC in our fiscal third quarter and in antenna system sales. For segment operating earnings, the Government segment posted fourth quarter operating earnings of $10.2 million, an increase of about 43% from the prior year. The fourth quarter increase is related to higher sales of UHF satcom products, which yield a higher profit margin, and JTRS development revenues, offset by higher Company funded research and development spending in our information assurance area.

For the fiscal year government segment operating earnings were $41.9 million which is a 49% increase from last year. Fiscal year operating earnings are primarily related to higher sales of MIDS production units and improved margins in this area, and higher MIDS JTRS and simulation development sales. Year-to-date margin increases are partially offset by higher Company funded research and development expenses of $4 million and increased selling expenses of approximately $6 million reflecting higher proposal and sales activities. The increase in operating margin also includes a benefit of $2.7 million related to our first quarter midsubcontractor legal settlement we have previously discussed.

Commercial segment operating margins declined slightly over last year in the fourth quarter by $100,000 principally due to lower margins in our antenna systems business. Year-to-date, the commercial segment operating earnings are down significantly from last year, mostly due to investments in the radio frequency micro positioning technology of $2.5 million we've discussed in prior quarters, third quarter move costs in Atlanta of over $1 million, and higher research and development investments of $3.5 million; all of this is offset by lower investments and improved performance in our consumer and mobile broadband product areas. Both the fourth quarter and fiscal year 2006 operating earnings amount include a pre-tax compensation expense charge of approximately 1.5 million related to the accelerated vesting of certain employee stock options.

As we look at the rest of the P&L, for the fourth quarter we experienced very good year-over-year revenue growth to $118.1 million, which is a new record. Selling, general and administrative expenses were higher year-over-year mostly due to higher selling costs from the higher sales volume and due to increased proposal activity, which is very robust in both segments. In addition, both cost of revenues and SG&A grew due to the compensation expense charge of approximately 1.5 million related to the accelerated vesting of the certain employee stock options. This option vesting acceleration was primarily made to eliminate about $13.6 million pre-tax of future compensation expense from adopting FAS 123-R. Of which approximately $5.9 million would have been incurred during our fiscal year 2007.

R&D was up significantly in the fourth quarter year-over-year due to the development of new information assurance, military satellite communication products and next generation VSAT equipment. We indicated throughout the year that we have identified a number of opportunities we believe will provide good returns to our shareholders in the future and given our revenue and earnings growth were able to increase discretionary spending to go target these opportunities. The increased spending for these opportunities manifest themselves in higher SG&A and research and development expenses.

Quarterly amortization of intangibles is higher for the fourth quarter year-over-year due to the acquisition of Efficient Channel Coding in the third quarter. We're seeing good leverage in operational efficiency as operating income increased by 58% on a sales increase of 30%. Our income tax provision for the fourth quarter reflects a quarterly tax rate of approximately 18% reduced for certain benefits in the quarter bringing the rate to about 11.5%. The tax benefit recorded last year was due to changes in estimates for both our R&D tax credit and extra territorial income, or ETI benefits, which did not recur to such an extent this year.

To summarize though, net income is down for the quarter year-over-year due to the higher investments in new research and development product expenses, the stock compensation expense, and the fact that last year we had substantial tax benefits in the fourth quarter. We will address the difference between GAAP and non-GAAP EPS in a few slides.

For the fiscal year results, we experienced very good year-over-year revenue growth. These results include a $2.7 million benefit related to the legal settlement with the MIDS subcontractor which we discussed in the first quarter, and it shows up as a reduction of cost of sales. SG&A expenses were slightly higher year-over-year mostly due to the higher selling costs due to the increased proposal activity and sales levels and move costs incurred during the third quarter of over $1 million to relocate our Georgia operations to their new facility. In addition, results also include the approximately $1.5 million of costs related to the acceleration of vesting of employee stock options.

R&D is up significantly year-over-year as anticipated due to the development of new military satellite communication products and information assurance products and next generation VSAT equipment. Quarterly amortization of intangibles is higher year-over-year due to the acquisition of ECC which was completed later in the fiscal third quarter. We expect amortization to be approximately $2 million per quarter over the next few quarters. Again, we are seeing good leverage in operational efficiency as operating income increased 42% for the year on a sales increase of 25%.

Other income and expense reflects higher expenses related to the unused portion of our credit facility and interest expense accrued related to prior year amended tax returns offset by higher interest income from higher invested cash balances. Our income tax provision year-to-date reflects an annual effective rate of about 18% for the year. The rate is significantly higher than prior year due to the expiration of the federal R&D tax credit as of December 31, 2005, and no federal R&D tax credits could be claimed in our fiscal fourth quarter. The resulting impact was approximately $1.1 million in higher taxes than if the credit was included. Further, fiscal year 2006 income taxes have a lower estimated ETI benefit as the ETI exclusion is being phased out and it is being offset partially by the new section 199 manufacturing deductions.

On this next slide we include to show the difference between GAAP and non-GAAP earnings and per share amounts. Non-GAAP results exclude the effects of acquisition related intangibles and the effects of compensation expenses from accelerating the vesting of certain employee stock options and related tax impact. The pre-tax compensation expense total for the fourth quarter and fiscal year is approximately 1.5 million and included in cost of sales, selling, general and administrative, and research and development expense line items in our P&L. It should be noted that year-over-year in the fourth quarter the weighted average shares used for the earnings per share computation increased by over 1.2 million shares, largely due to our stock price performance and the effect from the treasury stock method.

As we turn to the balance sheet, our balance sheet continues to strengthen. Cash and short-term investments increased an impressive 14.6 million in the quarter despite $11 million in capital expenditures, and was due to strong operating performance and a more efficient balance sheet. Accounts receivable increases we met program milestones and increased our book and ship orders. Unbilled accounts receivable have substantially decreased quarter-over-quarter mostly due to MIDS lot 5 shipments and consumer broadband program shipments. Inventory rose during the quarter by $9.8 million. The increase is mostly due to lower KG-250 shipments primarily due to government order delays, an increase in transit inventory as we shift certain of our manufacturing of high volume products to lower cost offshore suppliers. As we indicated over the past few quarters, as more of our business comes from book and ship type orders we will see some investment move from unbilled receivables to inventory to fulfill these orders. This balance sheet depicts this shift.

Goodwill and intangibles decreased in the quarter due to the regular quarterly amortization. Net property and equipment was up 7 million in the quarter due to capital additions mostly for facility expansion and test equipment to support our growth. Our capital expenditures were very robust over the past fiscal year, and we expect the investment level to come down over the next few quarters before it begins to pick back up again. The increase in other assets primarily reflects an increase in long-term deferred income taxes partially offset by the quarterly amortization of capitalized software.

As we look at the liability and equity side of the balance sheet, accounts payable increased in line with the increase with revenue. Advances were down quarter-over-quarter reflecting the achievement of progress towards completion on certain contracts. At the end of the quarter we continue to have no outstanding borrowings leaving our full line of credit available less stand by letters of credit. As of quarter end we had about 55 million available under our line of credit. Other current liabilities were up quarter-over-quarter by about 2.4 million due to increases in employee related accruals and income taxes payable. The quarter-over-quarter increase in other long-term liabilities is related to accruals for income taxes.

Looking at the balance sheet at a high level for the year, the working capital balances are growing with the growth in the business. Fourth quarter year-over-year revenues grew by approximately 27 million, in turn receivables and payables are up accordingly, further the shift to more ship and bill contracts will largely affect the current asset account mix.

As we turn to cash flows, we had a very good year for cash flows and a very good quarter for cash flows. In the fourth quarter we generated over 22 million in cash from operations. For the fiscal year we generated over 52 million from operations. Both of these are records for the Company. This cash, as I mentioned earlier, reflects stronger -- reflects strong operating performance and more efficient execution in the balance sheet. Cash flows from investing activities for the quarter and fiscal year reflects a significant increase in capital expenditures. This is largely due to the facility expansion projects at our facilities in Carlsbad, California, and the purchase of some land in Duluth, Georgia, in the fourth quarter. In the prior quarters this year we also talked about new facilities in Duluth as well as in Germantown, Maryland. Our capital increases are also from production test equipment to support our growth.

Further, in the third quarter the Company acquired ECC for $16 million. This also shows up in investing activities. We expect capital expenditures to be lower for the next few quarters, and then pick up later in fiscal 2007. We received $3.6 million from the issuance of common stock during the quarter and almost 10 million for the year, mostly from the exercises of stock options.

Net for the quarter cash increased by $14.6 million. For the year, though, we used 16 million to purchase a company, ECC. We invested almost $24 million for business expansion and we were still able to increase our cash on hand at the end of the year by $22 million. We're very pleased with the strength in cash flow and as we look ahead, we expect to continue to generate cash in the aggregate maybe not every quarter, but we should have strong cash flows over the next few quarters.

With that I will turn it back to Mark.

Okay. Thanks, Ron. I understand we're having problems with our webcasting service, so the slides are, I guess, way behind. At the end of the audio portion here, we're going to post the slides to our website. You will be able to get them there. If you like when we get to the question and answer section, you could go back and ask us for detail on some of the data, and we'll be happy to go back and revisit that verbally.

At this point I would like to quickly revisit our fiscal year '06 results, and then also the outlook for fiscal '07. Next we want to go over a kind of a retrospective of what we said for fiscal '06 for completeness. Last quarter we said that our targets for fiscal '06 were 400 million to 425 million in revenue with the high-end of the range more likely, and that our non-GAAP EPS targets were in the range of $0.95 to $1.05 and about $0.82 to $0.92 on a GAAP basis, and we said the middle of the range is more likely, possibly a little better. And so we came in a little bit higher than the high-end on revenues, and right in the middle of the non-GAAP pro forma earnings range that we anticipated.

As Ron had noted before, we didn't recognize any federal R&D tax credits in the fourth quarter because the legislation extending those credits for fiscal 2006 hasn't yet been passed, and also our GAAP net income for the year was a penny below the range because of the one-time option vesting expense of $0.04. As Ron mentioned, that became evident that that was a good trade-off near the end of the fourth quarter.

So now I will look at our FY '07 outlook. Essentially our FY '07 outlook is the same as we said it was last quarter. That basically, what we said was continued solid growth, revenues that would be in the range of $450 million to $500 million, non-GAAP earnings per share in the range of $1.15 to $1.25, that we'd increase our R&D investments, and we probably would reflect an increasing tax rate. Those are still applicable. We believe we will continue to have good growth into fiscal '07. The range is still pretty broad, and it reflects some uncertainty around the timing of specific contracts, especially MIDS production and MIDS JTRS development funding.

Overall our plans are consistent with the middle of the non-GAAP EPS range. Our new business pipeline seems good, and given a little bit of good timing, we could exceed the high-end of the revenue range. The pipeline also indicates an opportunity to continue to build backlog over our fiscal '07 as a whole, and possibly at quite a bit better rate than what occurred in FY '06. It is much less likely we would exceed the non-GAAP earnings range since there are a number of areas where we would like to invest in discretionary R&D and/or bid at proposal activities or cost reductions that would help sustain our long-term growth.

We're not giving specific guidance for individual quarters at this point. Historically our fiscal first quarter has been sequentially lower than the preceding year's fourth quarter, and we expect that to happen again in fiscal '07. We anticipate we'll have modest year-over-year growth in non-GAAP results from FY '06 to FY '07 in the first quarter, and we'll have steady improvements both sequentially and on a year-over-year basis over the course of the year. It does appear that R&D tax credits will be extended, but it is not certain that will happen in the current quarter. R&D tax credit effects could influence the first quarter results by $0.02 or $0.03 or so. In general, as with the past couple of years, we expect earnings to be significantly stronger in the second half of the year. We anticipate a little bit higher tax rate than in our fiscal '06 which would imply somewhat better than 20% growth in operating earnings to achieve the middle of the range on an apples to apples, non-GAAP comparison basis with fiscal '06. Also we're planning some expansion in margins to accommodate a little bit higher rate of discretionary R&D investments.

Overall, that covers all the points we wanted to make, and in summary, I feel like we've had very strong financial results, very strong cash flow, good market acceptance for our product and a strong new awards pipeline and good growth opportunities in our key areas. And a very solid balance sheet as well. The success of our MIDS, broadband and information assurance products has helped create a strong new awards pipeline, backlog trended up in the fourth quarter, and we're plan to go see that continue, taking into account a little bit of uncertainty about specific MIDS production lot timing. The major growth opportunities are still in MIDS and MIDS JTRS, information assurance, satellite broadband and satellite mobility. Recent developments in JTRS programs are consistent with our view that our opportunities in that market in particular are increasing. That's very significant because of the critical importance of JTRS to DOD's overall network centric warfare concepts. Commercial markets and trends seem positive, and our entry into the MSS mobility market opens a new and significant opportunity for us as well.

Thanks for listening, and at this point we will open it up for questions and try to address any of the shortcomings for having the slides out of sync.

[OPERATOR INSTRUCTIONS] Your first question comes from the line of John Bucher with Harris Nesbitt Gerard. Please proceed.

Hello. Make me a Frenchman here. It is still John Bucher here. (multiple speakers). Two quick housekeeping ones. First, the net interest was negative in the quarter. Why was that?

Okay. This is Ron, John. We have--- last year we did a bunch of amended international returns, and we had a large interest income benefit, and this year we had to amend----relat---it was largely due to some transfer pricing items, and this year we're amending the U.S. side of the returns, and it results in interest expense. They don't offset equally, but we had unusually higher interest income as a result last year, and the interest expense piece of it is flowing through this year. We actually generated a fair amount of interest expense higher year-over-year due to the higher average cash balances and the rising interest rate environment, and as we look forward, we expect to be generating interest income at a greater rate than we have historically given our higher average cash balances, and the interest expense is more of a timing issue related to amended tax returns.

I see. Then did you specify what the backlog was, total? I think Mark indicated he expects it to continue building in FY '07. Curious as to whether you quantified the backlog total?

I think I said our backlog now is about 372 million if that was the number [inaudible].

Okay. And then my real question is on your -- you listed--- of your growth drivers your fourth growth driver there, the satellite mobility space, it looks like the FCC is taking a fairly permissive posture here. Nothing is a done deal yet there, but with the other MSS providers that are going to be seeking ATC, do you have a feel for what the total industry wide addressable market opportunity would be to ViaSat for this type of equipment?

No. It is hard to say right now. I think there is multiple applications of the ATC spectrum, and you have seen, for example, two that have been discussed or one would be just integrating with mobility, for instance, the idea would be cellphones that could operate over both satellite or terrestrial as one example. Another example that's been kind of postulated would be to use that spectrum as the basis of a nationwide WiMAX terrestrial network, and I think that---what that's indicative of it that there is multiple potential applications, and we don't quite know which directions they'll go in. It is a little hard for us to assess right now. Overall I think it is a good opportunity. We'll try to quantify it, I would say over time, but I'll bet you it will take a few quarters to sort out.

Okay. It's the same question I asked in the last quarter's call, and I guess should we view -- you've listed as your fourth driver, do you consider it to be the fourth ranked overall driver commercial and government?

Part of the reason I mention it is I think mobility in general is a really good satellite application, and also I want to be clear that there's really two different flavors of mobility involved there. One would be the Ku-band platform oriented mobile stuff, and that we're already involved in. The other one would be the more personal mobile which in the MSM bands, and prior to the beam forming contract we were really only in the Ku-band platform one and now I feel like we've got opportunities in both.

And the opportunity is to the extent they need the satellite ground stations for the integration with the terrestrial network, that's primarily where you all fit in?

Yes. I think mostly it will be in trying to figure out how to integrate the satellite in terrestrial networks as a whole, how to share and reuse those frequencies, how the satellite infrastructure would relate to the terrestrial. There is opportunities for us to make satellite infrastructure and possibly some form -- possibly, possibly is the operative word there, some form of participation in remote devices depending on what those are.

Excellent. Thank you very much.

Okay. Thank you, John.

Your next question comes from the line of Steve Mather with Sanders Morris Harris. Please proceed.

Good afternoon, Mark.

Hi, Steve.

A couple real quick. One is 115 to 125 EPS non-GAAP, does that include this year's -- I assume it includes this year's option expensing, the FAS 123-R?

Non-GAAP results would exclude the effects of FAS 123-R.

Okay.

One of the things you didn't see on the slides, Steve, is what we tried to do is highlight what we thought the impact would be is really $0.05 to $0.10 a share for fiscal 2007.

Okay. Secondly, just following up on the last question, Mark, we've always talked about the spiraling effect on the government side and MIDS to JTRS is a good example. Can you give us another minute on this concept on the commercial side of let's say convergence of technologies in your portfolio, and how that might serve demand considering all this new spectrum is kind of being reshuffled and by your product portfolio, I am thinking you got WildBlue, you got the ground base beam forming, your old VSAT, SurfBeam, et cetera, do you see that as in a sense converging in a parallel path in, let's say, the spiraling effect?

Yes, I think it is a good question and a good observation. If you look at the different pieces that we've got, which would be, kind of the microwave integrated circuits business, the digital integrated circuits business, the networks business, we generally traditionally have been kind of a systems type player where we develop hardware and software, kind of board level or unit level products, and now I think the amount of vertical integration we have makes this pretty attractive for some of these applications, and that's what we're -- I would say that's what we're looking to try to achieve. I think we're seeing some of that in what's going on in WildBlue; it's part of the reason I think WildBlue has been successful, and it will be a good business for us, and I think there is opportunities to apply that into mobile. We'll have to -- one of the things that still really needs to be determined there is kind of what are the initial applications there and which segments of the market we can play in. I think your observation is on track for what we would like to do.

Okay, and one last one, you could probably take an out answering this but give us the minute. There is -- you ended up not being part of the prime. I was wondering if you can give us a little bit on that, a little bit where TSAT stands, a little on FAB-T and maybe even FCS if you're kind of---to what extent you're a part of that. Maybe the answer is you're not in there in a big way. Maybe the answer is these guys are going to be very important in one year. Can you characterize some of those big projects?

Okay. I think we've covered a lot of biggest DOD satellite and satellite ground system programs. Right now we have a very tiny role which is just in providing some link effect simulation, but I think one of the things is that our JTRS work actually can serve as a platform for implementing terminals, and that's actually looking pretty promising for us. It is especially promising because we have very, very strong share in kind of legacy UHF, so I think that -- I wouldn't completely count us out of the U.S. market yet. I think if we can get in, that's a good opportunity for us.

TSAT looks -- it still has funding. We're on the Lockheed and Northrup Grumman team, and there will probably be a down select sometime within a year or so, and the TSAT space systems represents pretty good opportunity for us in the tens of millions of dollars I think in the ground segment; what will happen there is there will be some ground terminal programs, FAB-T is one that you mentioned, maybe NMT, maybe a couple of others still to be determined where we could have an opportunity to participate and possibly as a spin-off of some of the things we do in JTRS. If the team that we're on wins, then TSAT will be a good opportunity for us.

FAB-T turned out to be a very big program for us, still working on that. Our main role is in security. Don't really see that changing very much, and FCS is kind of a future combat system. It is a big catch all for a lot of modernization of platforms and com technology and clearly our main entree into to that is through the JTRS program, JTRS is a very, very important component of FCS and depending on the path that our MIDS JTRS program takes we could end up having a significant role there. Does that answer your questions?

Sure. Thank you very much.

Thank you, Steve.

Your next question comes from the line of Larry Harris with Oppenheimer. Please proceed.

Yes, thank you. With respect to AT&T and WildBlue, if they move forward in terms of deployments in a large way, when do you think that you would be able to see revenues, you would see a material benefit?

I think the main way we'll see it would be in kind of the run rate of terminals that WildBlue takes and a little bit hard when we're one step removed from that, but I bet within a quarter or so that we'll see noticeable effects. That's kind of what I would guess. Noticeable being that we'll see terminal placements that are larger than what they've been achieving through the NRTC and their other distribution.

Especially I think one of the opportunities for WildBlue there is to get distribution into states that aren't necessarily covered well by NRTC right now. What you would see there would be some -- right now their total uptake rate is really good but kind of centered in particular geographic areas where NRTC is strong, and this could augment that, and we would see that in total terminal run rates. We're pretty excited about that.

Yes. With respect to the airborne market seems like you're doing well with executive aircraft, but have there been any changes in terms of the Boeing connection program, particularly domestically, any renewal of interest by domestic carriers?

It is a little hard for us to comment. You would have to talk more to Boeing. What I suspect is that the air-to-ground auctions are kind of putting the domestic market in a holding pattern so to speak. If that's the way to say it. I think you will see a lot more international. I think international is going pretty steadily. It is a pretty desirable feature. I think that the domestic, which tends to be more narrow body is just unclear at this point.

I understand. All right. Thank you.

Thank you, Larry.

Your next question comes from the line of Tom Watts with Cowen and Company. Please proceed.

Hi. This is [Shawn Farbas] for Tom. Tom is traveling. Quick question on the cash flow guidance. Since the slides weren't available. I was wondering if, Ron, you might be able to walk me through some of the main line items on that slide, and secondly, with regards to cash flow, is there any way that you would recommend we look at free cash flow going forward especially in light of revenue guidance of top end of revenue guidance is about 15% better than the fiscal '06. Should we perhaps track free cash flows with revenues or is there another way you would recommend us look at that? Thanks.

Okay. Hi, Shawn, this is Ron. Regarding the major items for the cash flows, I guess I will start first with the quarter, and we start with net income of about 5.75 million, and the add-backs were from the non-cash add-backs net were 2.5 million. There is a lot of things going on in there. You have depreciation and amortization were about 6.4 million, there was some non-cash tax impacts that were in there that bring that number down. As well as the stock comp expense, et cetera, and then the working capital changes were a benefit of $13.9 million.

Okay.

And that brings the net cash provided by operating activities to 22.2 million, and we had cash used in investing activity basically capital expenditures of 11.1 million.

Okay.

In financing activities we had the effects of common stock issuances from the stock option activity for---of 3.6 million. That brought us to a net increase for the quarter of 14.6 million.

Shawn, you ought to be able to see that pretty soon on the website. The charts are being PDF'd on there.

Great. Thanks. I appreciate that.

For the year the numbers are net income of 23.5 million, non-cash add backs of 17 million, beneficial changes in working capital providing 11.6 million, totaling net cash provided by operating activities of 52.2 million. And then in investing activities we had the acquisition of ECC was 16 million.

Right.

And purchases of capital equipment or fixed assets were 23.7 million for a total of cash used investing activity of 39.7 million. Proceeds from issuances of common stock down in financing activities were 9.9 million, and the net increase in cash equivalents for the year was 22.1 million.

Great.

As we're looking going forward, if you look at it on a fiscal year basis, this year we saw some shifts in how we're migrating certain of our---certain of our contracts are migrating for more percentage of completion which have different dynamics from a cash flow standpoint to more book and ship where the cash flow tends to turn a lot quicker, requires less investments.

We also saw shift in our types of contracts from a lot of more firm fixed -- from firm fixed products to more cost type, and that has also significant shifts in cash flow. That could be beneficial or detrimental depending upon your contract terms. When you look at our first quarter --- in our first quarter our cash from operations tends to be down some because we have pay outs of performance bonuses and 401K; in total those for this year are over $8 million. That will cause our current liabilities to drop by about $8 million for those things offset by only one quarter of new accruals.

Usually you see a net decrease in current liabilities which uses cash, so net for the first quarter we think will be much lower than we've been in the past couple of quarters. We think over the year--- we think cash flow is going to be good. Will we generate 52 million again? We're certainly getting into types of projects and contracting activities that will enable us to generate cash flow, but could I definitively say today that targeted against revenue growth? I am not sure that we could do that. One thing we are definitely looking at is lower capital expenditures for this fiscal year.

And lower inventory as a percent of revenue, too. Anticipate inventory turns should improve overall.

Okay?

Great. Thank you very much.

All right. Thank you.

Your next question comes from the line of [Kevin Spellman] with DBM asset management. Please proceed.

Hello, Kevin.

Long ago you spoke of MIDS-J as being on par with MIDS as an opportunity, somewhere around 2 billion total. With the rework of the program and all that offers, can you give us some idea what your new opportunity is both in the R&D and in preparation for sales and in sales of radios themselves? What sizes are those markets?

That's a good question. It is a little hard for us to quantify now, because the markets for the other MIDS clusters were pretty well defined at the start of those programs. I would say that there has been more focus now on redefining the programs as development programs than there was in terms of reallocating all the platforms and users of those programs.

Just to be clear, originally if you started with a cluster one or an AMF, you would say it is going to go on these platforms, and these platforms have these capabilities. Let me define a development program that has the union of all those capabilities. I think what's happened is that's turned out to be a very difficult and hard development program. I think the first thing that's happened is they've tried to -- this is our interpretation of that. You can make it different answers from different people. Our interpretation is what they really tried to do is first to rescope the development program and I think what you'll see is a little bit of jockeying for position on which of the developed radios are the best fits for the platforms. So I would say that's not quite clear.

I think your point is well taken, and does that mean that the market for MIDS-J is a lot bigger? I think that's yes. Is it bigger by -- actually in the past we've said if things go really well, maybe the market twice as big as we thought or three times. I would still say that's kind of the range of what we would be aiming for, somewhere in that range. Does that help?

Somewhat. How about the development work on these --

The development work itself? (multiple speakers) Yes. Our initial award for MIDS-J was around $60 million, and I would say, depending on how things progress, that we have a good shot at at least doubling and maybe tripling or more our development funding there and, that will depend a lot on what happens with these airborne networking waveforms, what happens on the international front, and what additional functionality is allocated to MIDS-J.

In Rockwell's call they said that this---that MIDS-J will be first out of the box somewhere 2008-ish. Does a lot of the development money, then, have to come in between then and now or is it you produce the first just MIDS-J box and then keep working afterwards?

I think it is more the latter. I think what you'll see is a lot of emphasis on -- I use the term existence proof which is to say that someone can actually make a JTRS radio that meets its initial specs. I think what you will see are the first production units that are really defined by the original development contract that went to us in DLS, but that you'll see what they're calling increments with advanced networking waveforms being the first major increment, and that some of those increments will have delivery dates that are well beyond the original production, the original completion of the program.

I understand MIDS-J was in CDR in critical design review---was or is. How is it doing?

Actually, things are going pretty well. I think we're pretty proud of the results to the program as a whole and our contribution to it.

One question about info sec. You speak---keep speaking of -- [op to be on par with the size mids and that problem] and yet things like KG250 doesn't---it always seems to be dragging. What's the -- what's happening there?

Well, I think what we tried to talk about in the IA market or information assurance market or to be a little more specific, there is KG250 and the 255 are kind of what they call I&E's, which are basically in line network encryptors, and I would say one way to look at it is that those are remote access devices. If you think of network centric warfare and you think of the concept of an airplane or a ship or a vehicle having the equipment of a cable modem and that cable modem could eventually be a JTRS modem, but it is basically a broadband IP connection and needs to have an inline network encryptor on it. What the purpose of that -- some of it's serves as a vehicles to talk directly to each other, but a lot of it is more of the internet model where you're connected to a backbone, and in the DOD's case that, backbone is what's called the global information grid backbone expansion or gig B.E., and I think part of what we believe is that the gig B.E., it is the IP V-6, IP, MPLS expansion of the DOD infrastructure, and that's really intended to serve users in these I&E's and I would say that's rolling out a little bit more slowly than people thought and that has impact on the I&E market.

I think our main view right now is it is not so much that we're losing business or we're not getting---someone else is beating us as the business has kind of rolled out more slowly, and we actually still think we're doing pretty well, and we think this quarter ought to represent a nice uptick for us. Overall I think it is played out a little more slowly. We're still -- we don't think anything really bad has happened yet.

All right. That's it.

Good. Thanks for your questions.

Your next question comes from the line of Rich Valera with Needham & Company. Please proceed.

Thanks. Good afternoon, guys. Just specifically on some of the MIDS-J development awards, you got the small A&F award this quarter. Presumably there is a larger one out there, I think you alluded to it in your comments about potential awards. Can you give us any sense of the magnitude, potential magnitude of the second A&F award and has there been anything or do you think you will get anything for the Have Quick 2, another wave form you were expected to add to the platform?

Yes, the one that we announced as far as around $3 million for the airborne networking wave form, and I would say the add-on, the full scale development of that, our portion of that will be in the low tens of millions of dollars. It is a little hard to predict exactly right now. It will be low 10's. It will be much bigger -- much bigger than what we've gotten so far, but smaller than the original program.

There are a number of additional wave forms and other capabilities that are in queue, and I am not going to comment directly on the Have Quick, because I actually personally don't know the answer to that one. I think that's on the list, but there are other things that I know are in the queue that would happen. I think part of what's going on is I think the government has been very happy with the business model that has this kind of -- what they call an integrated product team which is us, and DLS, where we define and build a product and compete in the production. I think the government feels they've gotten very good results on MIDS LVT and are trying to apply that to MIDS JTRS. Part of what's going on in the Airborne Networking Wave Form is for the government to just refine the process adding scope to the IPT contracts, and you can imagine that you've got two different contracting teams that need to work together and jockey for position, and I think the government is doing a good job of managing that. I think when you see that completed through A&W thing, I think you will see more things follow.

The part that's going on now is the additional initial kind of spec development for how we apply these things, splitting up the work shares, a little architecture work, some of those things which is exactly what we did early on. [Inaudible - microphone inaccessible.] It is just like Mark said. It is the same process.

And, Ron, with respect to your fiscal '07 guidance, can you tell me what tax rate is embedded in that? It sounds like you said it'd be a little higher than last year. Can you be more specific than that?

First of all, I think it depends on---we have like a base planning rate that's around 27% that we're using, but they're--- dependent on what happens with this R&D credit, whether or not it gets reinstated, when it gets reinstated, is it retroactive back to the beginning of the year, what are all the terms around that? That could impact what the rate is. We just don't know yet based upon -- we do forecast though, we do believe for the entire fiscal year we will be able to use an R&D credit benefit for federal purposes.

So right now I think the guidance has a 27% rate in it. I think what he's trying to say is if we get the retroactive benefit, some of it may show up in rate as opposed to EPS growth.

Okay. And you said that the first quarter might actually be higher than the year as a whole. Should we still really be thinking of the first quarter as a 27% quarter and then maybe the year actually gets lower if you get the tax credit reinstated?

Actually, for instance, if the tax benefit gets reinstated back to January 1st in our first quarter, we would get the benefit in the first quarter, and it would cause our rate that we report for reporting purposes to be much lower because we get the fourth quarter benefit and then kind of an average benefit over the year all in the first quarter, so it actually lower it substantially.

Okay. One final guidance question. In terms of R&D, you had a pretty big jump in R&D in this quarter. Is there anything sort of one-time or unusual in that R&D level or should we think of something 5 plus million level going forward?

There wasn't anything unusual. Basically what we're trying to do is -- we're trying to kind of manage our spending consistent with what we earn, and we'd like to grow it. Does that help?

That helps. Thank you guys.

Your next question comes from the line of David Kestenbaum with Morgan Joseph. Please proceed.

Thanks. You gave guidance early in the year of bookings in the mid-400 million level. You came in right there. Was there anything that surprised you either that fell into this year or fell into next year possibly, can you talk about that?

Well, the composite results, it is sort of typical. The composite results are pretty much where we would have aimed, but the exact composition of that, the components of it are a little bit unpredictable. So, clearly, there is some stuff that hasn't happened yet that we thought might, and a lot of that are things, the international MIDS stuff, there is a couple of pretty substantial international MIDS orders that we've been selected for that haven't hit yet, and we expect those will, still, and some of those are tied to things like weapons programs, like F-16 orders, for instance. It is pretty -- we're reasonably confident they're going to happen at some point. That's part of the reason we think our pipeline is strong now.

Other areas of things that were sort of on the list that could have happened this year that didn't yet are things like the international participation of MIDS JTRS, that's actually been delayed a lot partly because the government has now had access to other sources of funds to support MIDS-J and also some of the upgrades for the advanced networking wave form were things we could have thought happened and didn't happen this year. Overall in that context we're pretty happen with the orders we had this year and we think this creates more potential for next year.

Okay. And obviously sitting on a nice pile of cash and sounds like you're going to add a lot more next year. Do you have a target cash balance you want to hold onto and are you looking at acquisitions? What do you plan to do with that cash as you go forward if you are successful and add more cash in '07?

Personally, I would be happier if we were sitting on a little bigger pile of cash, and I think we're pretty happy with the amount of cash that we generated, so I think we feel like things are going pretty well, that we'll continue to generate cash, that we will accumulate some. I don't think there is any sense of urgency on our part.

I do think that, as I mentioned before, we've been pretty pleased with the ECC deal that we did, and we said in the past that if we found other opportunities that were similar and that they brought us good technology in areas we thought we could gain synergies from, we would do that, and honestly we're looking for others that are kind of in that range, and that would be -- that's kind of about the only thing that we have currently envisioned for cash usage.

It does just give us more flexibility and ability to react quicker to things which is good.

Thanks a lot.

Thank you.

Why don't we take one more question.

Yes, sir. Your final question comes from the line of Jim McIlree with CE Unterberg Towbin. Please proceed.

Yes, Greg. Thanks. Any guess on what orders might be for fiscal '07?

Oh, yes, there is a range, and I would say that the range probably -- well, okay, so just to be clear, what we do is try to look at what's the probability of us winning, what's the probability that they fall into the time period, and I would say we have a good shot at exceeding revenues by 10% to 20%ish, kind of in that range. That would be good for orders total.

I think one of the things have you to take into consideration is we have made a pretty good shift this year from normal type multi-year orders to book and ship type stuff, so quite a bit of higher percentage of our business, and it has changed quarter-over-quarter through the years and begin to ship more and more of our consumer VSAT products, and that has moved into book and ship category, so just kind of changes the nature of the new order flow, but I still think what Mark just said is right.

Okay. Great. And lastly, it sounds like on the government side there is a shift towards more development business as a percent of the government revenues. One, is that correct, and two, if it is correct, does that imply that the gross margins are pressured a little bit in this fiscal year?

I wouldn't necessarily say that. If you look at kind of the single biggest component of our defense business, it is production of MIDS terminals, so that's important. We when we do have development, okay, let's say it is definitely true that our gross margins on government production programs are significantly higher than they are for government development programs. That part is true. To the extent we add more government development programs, that will depress the gross margins in general.

One of the good things is that we're tending on a government side to have more cost reimbursement programs, so those have kind of maybe a little lower peak potential gross margin but probably less carry, less risk, and one of the things that can impact our gross margins as a whole is overruns on fixed price development programs. You have to kind of throw all those factors into the mix.

And lower R&D expenditure requirements as we have more development -- (multiple speakers)

---you have to throw all those things in the mix. You can tell because we're aiming to increase our R&D spending. As I mentioned before, we're trying to accommodate a little more discretionary spending, so we're aiming to increase our gross margins a little bit. Does that help at all frame things?

Yes, it certainly does. Thanks a lot.

Thank you, Jim.

This now concludes the Question and Answer Session. I will now turnover the call to Mr. Dankberg for any closing remarks.

Okay. Thanks a lot, everybody, for attending our call. As I mentioned before, you should be able to download the slides as a PDF file on our Investor Relations website. Sorry for the inconvenience there, and we look forward to another conference call in three months. Thanks again.

Thank you for your participation in today's conference. This concludes the presentation. You may now disconnect. Good day.