Viasat Inc (VSAT) 2009 Q3 法說會逐字稿

Good day, everyone, and welcome to ViaSat's fiscal year 2009 third quarter earnings conference call. Today's conference is being recorded. At this time, I would like to turn the conference over to Mr. Mark Dankberg, Chairman and CEO. Please go ahead, sir.

Okay, thanks. Good afternoon, everyone and welcome to our ViaSat earnings conference call for third quarter fiscal year 2009. I'm Mark Dankberg, Chairman and CEO, and I've got with me Rick Baldridge, our President and Chief Operating Officer, Ron Wagerin, our Vice President and Chief Financial Officer, and Kevin Lippert, our General Counsel. Before we start, Kevin will provide our Safe Harbor disclosure.

Before we get started, I want to acknowledge that we are aware that our 8-K was released during market hours today. Now getting back to the Safe Harbor, I would like to remind you that the discussion today will contain forward-looking statements. We would like to caution you that actual results may differ materially from those projected in statements. Risk factors that could cause actual results to differ are discussed in our SEC filings, including our most recent reports on Form 10-K and Form 10-Q. Copies are available from the S.E.C. or from our website. That said, let me turn it back over to Mark.

Thanks, Kevin. Our slides are available over the web. So we'll start with our fiscal year '09 third quarter and year to date financial results, give a business overview perspective and some business highlights and discussion, and after that, Ron Wagerin will discuss our financial results in more detail. Finally, I will update our outlook for this fiscal year and next fiscal year, and we'll summarize things then take questions.

So overall we're really pretty happy with our financial situation in the context of overall macroeconomic environment. Earnings and cash generation for the quarter and year to date have been consistent with our plans. New orders were exceptional in our first half and that, combined with us being a little more cautious on spending and careful with our contract backlog management. lended confidence to our outlook for continued revenue and growth this year and next. We're very pleased to be able to say that our earnings outlook for this year and next year is unchanged from last quarter. Our third quarter results fit kind of right into that picture. GAAP diluted earnings per share increased from $0.32 to $0.34 year-over-year. Non-GAAP diluted earnings per share grew from $0.40 to $0.43. As has been well anticipated, primarily due to the restoral of the R&D tax credit, our tax rate at about 8% is much lower than the same period last year, when it was actually a higher than normal 30%. So we were able to achieve our earnings objective on revenue that was actually about 1% lower than last year.

New orders for the quarter were pretty good, and actually skewed significantly towards commercial while government contracts took something of a breather after two consecutive outstanding quarters. Our contract backlog remains pretty strong. This third quarter year to date charge is also consistent with this. As anticipated, the year to date effective tax rate is about 15.5% versus last year's higher than normal 29%. And that contributes to GAAP earnings per share rising from $0.71 to $0.82 on a year-over-year basis, and non-GAAP diluted earnings per share growing from $0.96, up to $1.11. Those are increases of 15 and 16% respectively on a year over year basis. Revenues year to date are up about 8% from $427 million to $462 million. But again, reflecting our very strong new orders activity in the first half, year to date orders are up over 30% compared to last year at $604.5 million versus $461.5 million. Defense orders especially can be quite lumpy, you have to remember.

Let's take a quick overview. and I will put those top level third quarter financial results in some context. Again, from a top level perspective, we're managing pretty consistently with the way we usually do. We're aiming to achieve steady earnings growth in the present, while investing to the extent we can in our future. The fluctuations in our tax rate are certainly a factor in that. We consider ourselves fortunate because we have a number of promising business areas worth investing in. The time horizons for these areas, for realizing benefits in these areas, really varies across the different areas. While some of these markets may be impacted in the near term by the economic climate, as we've said before, some of our government businesses can certainly benefit from a renewed DoD macro focus on cost containment. So the areas listed in this chart are consistent with where we've been focusing for the last year or so, and we'll discuss each of the, in more detail later in the call without having to itemize them right here on this page.

So now we'll switch to looking at our government business. And our government business continues to lead our overall financial performance, and our outlook remains good in each of these business areas. The MIDS JTRS, or joint Tactical Radio System Program has continued to show good progress with completion of the second phase of security verification testing and the Navy is also conducting initial flight qualification testing. We believe we're making progress in getting the attention of a number of new platforms and programs that need advanced multichannel joint tactical radio system capable radios. And that would go beyond those currently served by our MIDS LVT units. The underlying dynamics there are the program schedules for radios or radio upgrades on these platforms relative to the current outlook for radio availability from the other JTRS development programs. So there are projects in play to considerably expand our JTRS market. We anticipate an award of initial MIDS JTRS a low rate initial production, or LRIP quantities to be sometime this summer. That would follow on the production transition terminal orders we've already seen this fiscal year and it is consistent with our view of MIDS J transitioning into volume production as the successor to the MIDS LVT, or low volume terminal program.

Meanwhile international orders for MIDS LVTs remain solid as those users' deployment are scheduled to up catch up to deployments on the US forces. Sales of our legacy unmanned aerial vehicle, or UAV data link products, continues to be good and we seem to be consistently winning positions on the tier 2 or tactical UAV class of vehicles. We anticipate these design wins will provide very good year-over-year growth in that space for several years. We're almost done with the most current version of the government high assurance Internet protocol encryption standard, or HAIPE secure networking standard for our KG 250 and 255 in line network encryptors. That creates additional space between the leaders in this area and the rest of that market. We're still seeing opportunities for embedment of our core security modules in other radios and communication systems.

Government satellite communication systems awards have been particularly strong this year and we anticipate that continuing for the foreseeable future as the government takes advantage of existing commercial transponder leases, the new capacity on the wide band global satellite system, and the upcoming launch of the next generation version of the UHF frequency band satellites, or the mobile user objective system. And that's MUOS, currently scheduled for launch next year, 2010. In general the deployment of new DoD satellites, both wideband global satellite and MUOS creates a positive environment for our ground terminals. Subsequent to the end of the quarter, we received an order for an initial quantity of 45 low rate initial production transceivers for the blue force tracking 2 situational awareness program. Those terminals are to be used for field trials currently scheduled for this fall. That was basically the event that we've been expecting as the next step towards transitioning into volume production. and it represents most of what we have been planning for fiscal year '09 as well as next fiscal year. The Army has been planning to tie production of our blue force tracking 2 terminal into deployment of the next generation of let's call it the FBCB2 battle management software system. Now they are considering options to introduce the benefits of blue force tracking 2, including new security capabilities more quickly.

We've also received additional awards for our arc light product which is currently being outfitted on tactical military ISR, or intelligent surveillance reconnaissance platforms, and we're getting a lot of interest from new platforms. Arc light is our broadband mobile KU band networking product. And this integration into these ISR platforms is something that we've been working towards for quite awhile, and it could lead to significant growth opportunities. Our base commercial aviation and maritime capability and coverage has been a big help in showing government customers that this is a mature off the shelf capability that can be deployed quickly.

Switching to our commercial business, overall there were really no major issues in our commercial business which is probably not such a bad thing now, all things considered. Consumer broadband in the US is pretty stable in terms of gross subscriber additions, which ultimately is what drives our unit shipments. WildBlue, our dominant US customer has been adding incrementally to capacity in high-demand market areas, but has also been filling orders there. So capacity limitations remain a factor in overall subscriber growth. They have been promoting their service more in geographic areas that have lower demand to stimulate the demand in those areas. Overall, as we've been expecting unit shipments are lower than last year, that reflects the capacity limitations as well as a desire on WildBlue's part to continue to push down inventory in the distribution pipeline. We're continuing also to work with Utilsat on the interim two-way branded service in Europe, paving the way for next year's KA-sat launch. Planning for the Canadian portion of ViaSat 1 is also becoming more active. There are a number of opportunities to work with planned new KU bands in other parts of the world.

Also we're certainly aware of the new administration's interest in investing in and stimulating the broadband access market in the United States. We've been active in communicating our views. We've been encouraged that in people inside the government, as well as in the nongovernmental public interest research groups, seem to appreciate the difference in our approach to bandwidth provisioning and service quality compared to existing broadband satellites. We believe there are very compelling reasons to include very high performance satellite services as a component of an overall national broadband policy and we're hopeful that forthcoming legislation and implementation language will reflect that. Either way we don't really anticipate any significant adverse impact on the market that we've been aiming at with ViaSat 1. The KU mobile broadband area continues to expand in terms of geographic coverage and total number of platforms served. Our maritime efforts, working with K V H, are growing nicely. We're also adding new channel partners to help reach other maritime customers.

The overall business jet market is very tough, and so we're adjusting our outlook for service revenue there downward a little bit, and we're not really anticipating any near-term growth in unit shipments for business jets. Overall, though, there are good long-term signs for the KU band global mobile broadband market. Our antenna system business continues to perform within plans and the conventional VSAT business is challenging on an industry wide basis but we remain optimistic that we will see significant competitive advantage beginning next year working with UtilSat on KA Sat. We received a new contract for a large international VSAT network near the end of the December quarter. This customer has executed its financing agreements and expects to initiate work on the project this quarter pending completion of some additional supporting documentation. We will provide more information in the next few weeks or so as we can on that project. We've been talking about our accelernet wide area networking acceleration software business for about a year now. So far this remains a lot more like potential energy than kinetic energy. While revenues are slowly increasing, which is saying something in this market, for IT capital spending, actually, we've invested more this year than we anticipated. Based on market reception and our good OEM relationship with Cisco, as well as Cisco's progress in the market, we're maintaining our efforts to the extent we can while meeting our overall financial objectives.

So a quick update on our KA band ViaSat 1 project. We consider the macro environment for our KA band project to be steadily becoming more favorable in the year since we started. We think there is, in general, a greater appreciation in the market for the cost and technical difficulties that wireless or other terrestrial technologies would face in bringing the level of service that we're targeting to a specific geographic market we're aiming at. Certainly seems that the expectations around WiMAX are subsiding, and that there's greater recognition that WiMAX is more evolutionary than revolutionary. It also seems clear that demand in the US is quite high in the geographic areas addressed by ViaSat1 and the associated value of having new capacity in 2011. And we actually believe the range of potential partnership and financing options is becoming broader and not narrower. We continue to make steady progress on managing the satellite in its launch within budget, non schedule. We have completed the satellite critical design review, international interest in K A band broadband and our project remains quite high. We have also been doing more work with the government on potential applications for our own defense applications. We're working more closely with Loral and Telesat on their Canadian ViaSat 1 capacity and we should be beginning work on the ground segment for that in the not too distant future.

It appears that financing opportunities for us are somewhat better now than they were even a quarter ago. While we continue to make capital investments in the satellite, we extended our short-term credit facilities last quarter which we believe gives us adequate maneuvering room. We continue to explore a number of avenues for partnerships and additional financing approaches. As we have consistently stated from the start of the project we believe that our ability to finance the project on our own is an important component of ultimately reaching any potential or eventual partnership outcome. The list of factors we're considering in working through financing is consistent with what it was last quarter. I'm not going to go through those by points, but as we have mentioned, we perceive that serial of those factors are trending somewhat more favorably.

So that's kind of a business overview. At this point, I would like to introduce Ron Wagerin, our CFO, who will discuss the financial data in more detail.

Thanks, Mark. We'll start with the P&L and segment results, then cover the balance sheet and cash flow. Revenues were $150.4 million, a slight decrease over the third quarter last year. We'll address specific revenue changes later in the segment results. Our cost of revenue percentage increase reflects two things. In the third quarter of last year we had some high-margin sales that contributed to a higher gross margin, and secondly, in the third quarter this year, we had a higher proportion of funded development projects, which were at lower gross margins. Selling, general, administrative expenses were higher year-over-year, mostly due to higher selling and new business proposal costs for a record year to date awards. Support costs from increased business activity, as well as legal and other costs associated with our K A band satellite initiative.

Research and development expenses were down 17% in the third quarter year-over-year, principally due to the shift of some of our development efforts going from internal development projects to customer funded development. However, we continue to invest in next-generation tactical data links, information assurance, unmanned aerial vehicle and broadband technologies. Quarterly amortization of intangibles is slightly lower for the third quarter year-over-year, due to the completed amortization of certain intangibles. Income from operations for the third quarter of fiscal year 2009 includes noncash stock-based compensation expenses of $2.5 million versus $1.9 million for the third quarter last fiscal year. Other income decreased at a lower interest income earned from lower invested cash balances and significant lower interest rates year-over-year. Our income tax provision for the third quarter reflects a quarterly rate of about 8% versus 30% in the third quarter of last year. The quarterly rate is lower than the estimated annual effective income tax rate, primarily due to the expiration of the statute of limitations for previously filed tax returns resulting in the recognition of previously unrecognized tax benefits and the benefit from settlement of prior year taxes of approximately $1.8 million. We now expect our annual effective rate to be approximately 19% this year.

Minority interest decreased to lower operating results in the quarter of our majority owned TrellisWare subsidiary, versus the same quarter last year. We will address the difference between GAAP and non-GAAP earnings per share in a few slides. In looking at our year-to-date results, year-to-date revenues continued on a record pace at $42.6 million, an 8% increase over the same nine months of last year. The slight cost of revenue percentage reduction reflects improved margin performance, particularly in our government products area offset by lower margins on some funded broadband development programs.

SG&A expenses are significantly higher year-over-year, mostly due to higher selling and new business proposal costs from our record year to date awards, support costs from increased business activity, as well as legal and other costs associated with our KA band satellite initiatives. Research and development expenses are down slightly year-over-year, year to date, and reflects a high level of R&D in the first quarter offset by reductions in the second and third quarters due to a shift of some of our development efforts going from internal development projects to customer funded development. Year to date amortization of intangibles is slightly lower due to the completed amortization of certain intangibles, partially offset by amortization of new intangibles from our JAST acquisition in the second quarter last year.

Income from operations for the first nine months of fiscal year 2009 includes noncash stock-based compensation expenses of $ 7.6 million, and it was $5.6 million for the same period in fiscal year 2008. Other income increased -- I'm sorry, other income decreased due to lower interest income earned from lower invested cash balances and significantly lower interest rates year-over-year. Following the extension of the federal R&D credit, from January 1st, 2008 to December 31st, 2009, our income tax provision for the first nine months of fiscal year 2009 reflects an estimated effective rate of 19%. The effective rate affects the extension of the R&D tax credit and our fiscal second quarter of this year, and the expiration of the statute of limitations is previously filed tax returns resulting in the recognition of previously unrecognized tax benefits, and a benefit from the settlement of prior year taxes of approximately $1.8 million in our fiscal third quarter. Minority interest decreased due to lower operating results of majority owned subsidiary, TrellisWare, versus the first nine months of last year.

In looking at our segments, in the government system segments revenue for the third quarter was $93.8 million, a 10% increase over the same period last year. Year to date for the first nine months. revenues were $279.7 million, a 19% increase over last year. The increase for the quarter and year to date is primarily related to increased sales of next generation information assurance products, higher information assurance development and next generation military sat com systems revenues partially offset by lower sales of our majority owned subsidiary TrellisWare.

In the commercial network segment. revenues for the third quarter were $54.2 million. The 17% decrease over the same period last year. The year-over-year quarterly decrease is primarily related to lower consumer broadband sales as our primary customer, WildBlue, manages expenses. We do not believe this is sustainable and should improve. This decrease was partially offset by increases in mobile satellite system sales. Year to date for the commercial network segment, revenues were $176.4 million, a 5.5% decrease over the same period last year. The change primarily reflects lower consumer broadband sales, offset by higher mobile satellite systems revenues.

For satellite services for the third quarter and year to date sales were slightly higher from the same periods last year. In the third quarter. government systems segment posted operating earnings of $14.3 million, a decrease of 9% from the prior year, primarily due to mix of higher margin sales in the third quarter of last fiscal year when compared to this fiscal year. Year to date government segment operating earnings were $39.6 million, an 18% increase over the same period last year. The year-over-year operating earnings increase is principally due to higher revenues and the associated margin, offset partially by higher selling and new business investment costs and higher R&D investments of next generation tactical data link, information insurance and UAV products.

Commercial network segment operating profit declined in the third quarter and year to date year-over-year. Although we experienced improved performance in our mobile satellite and antenna systems areas. these were offset by reduced earnings from our consumer broadband products, investments in our Accelernet product and new business investment costs. For satellite services for the third quarter, the operating loss was slightly lower, while year to date the operating loss was higher year-over-year primarily due to legal and other costs associated with our ViaSat 1 satellite.

For the third quarter of fiscal year 2009, operating earnings amounts include noncash share based compensation expense charges of approximately $2.5 million and were $1.9 million in the third quarter of 2008. Year to date through the third quarter of fiscal year 2009, operating amounts include noncash share based compensation expenses -- expense charges of approximately $7.6 million, and were $5.6 million for the same period last fiscal year. As we look at the GAAP and non-GAAP EPS difference, non-GAAP results exclude the effects of acquisition related intangibles and the effect of noncash share based compensation expenses net of tax. The changes year-over-year are primarily related to higher net and pro forma income. The lower diluted common equivalent shares year-over-year are primarily due to the treasury stock effect from lower average share prices.

Turning to the balance sheet, overall we continue to have a strong balance sheet. Cash and short-term investments decreased by about $61.5 million from the beginning of the year due to investments in our ViaSat 1 satellite project. We'll talk about the movement of the cash later when we review cash flows. Billed accounts receivable decrease owed on improved collection activities. Unbilled account receivable increased due to the timing of certain contract milestones primarily with our mobile satellite and broadband system contracts. Inventory was up by about $2 million from the beginning of the fiscal year primarily due to the transition of some products to a units to delivery basis of accounting. Prepaid and other current assets are higher primarily due to income tax receivable and an increase in prepaid rent due to the timing of the fiscal quarter end. Goodwill and intangibles decreased due to the regular quarterly amortization. We're about one year into the construction of our ViaSat 1 satellite. Year to date we've capitalized -- and to date we've capitalized approximately $85 million through the third quarter, primarily related to progress payments for the satellite and the launch vehicle. Net property and equipment i sup about $4 million since the beginning of the year and reflex normal capital projects to support our business growth, primarily lab and production test equipment and facility expansion. Year to date, we have increased our investment in the satellite by over $77 million.

The change in other long-term assets is primarily due to increases in deferred income taxes offset by amortization of capitalized software. As we look at liabilities and equity, accounts payable increased slightly, and it's associated with inventory purchases from our supplier and capital equipment growth. Days payable balances remains below our historical averages. The biggest change in liabilities was advances, down mostly in our commercial segment reflecting timing of receipts and contract milestones, primarily on mobile satellite and antenna systems programs. The change in other current liabilities primarily relates to the payment of a secured borrowing in the first quarter of about $5 million associated with an enterprise VSAT program offset by changes in warranty and employee related accruals. The increase in other long-term liabilities was primarily related to an increase in long-term deferred rent. Regarding the minority interest change, in the first quarter, our majority owned subsidiary sold stock to existing stockholders. We also invested in the transaction to maintain our equity percentage. The result was an increase in minority interest of $1.5 million. At the end of the quarter we continued to have no outstanding borrowings leaving our full line of credit available less standby letters of credit, including the effect of stand by letters of credit we currently have $79 million available under this line to support our business growth.

As we look at cash flows for the quarter and year to date, we had good net income and noncash add-backs which was offset partially by changes in working capital. The result was cash generated from operations of approximately $13 million for the quarter, and $31 million year to date. Cash flows related to investing activities for the quarter and year to date reflect capital expenditures for satellite project, business expansion activities and capital expenditures for licenses and patents related to our satellite project and payment related to our JAST acquisition. Cash provided by financing activities year to date is primarily from stock issuance from our majority owned subsidiary, and the net proceeds from common stock issuance offset by payments on the secured borrowing.

Our forecast for generating cash from operations is consistent with our previous estimates and our outlook at the time we announced our ViaSat1 project. We recognized our use of cash over the past several quarters related to ViaSat 1 has increased substantially. We believe our cash on hand and cash we expect to generate from operations will be sufficient to meet our needs and have our line of credit available should we need to access it. There continues to be multiple options with regard to financing the balance of our satellite project. The path we have most control over at this time is the self-funding option. Accordingly, we will be working with our financial advisers and bank group to increase our available credit. We believe our financial strength, a low projected debt to EBITDA leverage, and a valuable satellite asset will enable us to secure the remaining capital necessary to complete the ViaSat 1 satellite if we have to go down that path.

Now I would like to turn it back to Mark to talk about our outlook.

Okay, thanks, Ron. As I mentioned before, our outlook for this year as a whole remains consistent with our estimates the last couple quarters. We're still aiming at the same range of GAAP and non-GAAP earnings per share, which is shown in the slide in about the 155 to 160 range for non-GAAP and 117 to 122 for GAAP. We're still looking at about a 10%ish year-over-year growth right now for our fiscal year '10, 2010, which begins this coming April. Overall, we think that's a pretty good rate of growth right now, especially in this environment. Our recent robust order activity, as well as the breadth and diversity of potential new business opportunities are the main factors behind our current thinking. As usual, new orders for us can be quite lumpy as we work towards all the additional orders we'll need to achieve those results.

So then, to summarize, on the last page here, by saying that we feel pretty fortunate at this point to be pretty much on the same earnings growth path that we were aiming at a year ago. Plus the strength of our new contract award so far year to date lends confidence to maintaining that growth outlook. We're enthusiastic long term about our mix of technologies and market applications. We're seeing favorable signs in the market that support transitions from some of our current generation products into their next generation versions, that will help sustain our growth in the long term. While we still have a lot of work to do on our KA band satellite project, we're more than a year into it and are seeing things in the broadband market unfold so far pretty much in the way we've anticipated. The severity of the credit crunch in general is worse than expected, but indications seem that adequate financing is available on reasonable terms in our particular case.

Overall we feel that our core businesses are strong and provide good enduring opportunities for continued growth. That pretty much concludes the prepared part of our presentation. At this point we'd like to open it up for questions.

(Operator Instructions). We'll pause for a moment to assemble our roster. We'll have our first question from Rich Valera with Needham & Company.

Thank you, good afternoon, gentlemen. I was wondering if could you talk about MIDS and MIDS-J combined and how you think they will trend sort of fiscal '09 to fiscal 2010 and maybe even fiscal 2011. Do you see the combination of those two growing over that period of time?

That's a good question. That's sort of what the plan has been, and we have more visibility into it now, and, there's two different parts to it. One is the revenue part. The other is the orders part. I would say this year, let's say this year, '09, to 20 10, our next fiscal year, we're probably going to see revenues pretty flat, but what we're expecting, partly because of the things that I talked about international, the L-rip program that we'd see a pretty nice step-up in orders in fiscal year 2010 compared to 2009, so that really sets the stage for growth in 2011. And what we've really been sort of aiming for is to be able to layer an emerging MIDS JTRS program on top of sort of cresting MIDS LVT program, an that's pretty much what looks to be shaping up to be the case.

That's helpful. And with Utilsat can you talk about the trajectory of your revenue with them specifically, initially the Gateway revenue, how you expect that to roll out over the next sort of several quarters, I guess?

The contract that we've announced so far is $1 million order for network infrastructure, and that -- think of that as really being deployed right up to around about -- probably a little advance of their satellite launch, which they're proceeding as the beginning of the second half 2010, so that gives us 5 to 6 more quarters to recognize the bulk of that revenue.

And when do you think -- you think it will be fairly linear, or is there going to be a certain sort of contour to that?

Yes, I think, Rich, this is Rick, I think that there's two components of it, and one is some of the upfront engineering work, and the fact that we just finished our design, those guys, so it should be ramping between here and there. It won't be flat.

Okay.

A lot of the material in that coming towards the end, towards the end of that period, but certainly growth in fiscal year 2010, which is mostly counter to 2009 from '08, and heavier towards the back end of that fiscal year.

And then also, there are potentially other components that we'd see revenue on, that are related to that network, that aren't encompassed in the contract that we've gotten so far. You might start seeing occur, probably early next fiscal year.

Okay. That's helpful. And I'm guessing if you had something to say you would have said it here, but I have to ask anyway, with respect to potential distribution partners for your ViaSat 1 venture, any color at all you could add there on your discussions?

Yes, the main one is that it's the same thing that we've been talking about, which is that there's -- their existing distribution channels, those channels, branding and selling, this service, it compliments their existing businesses, and it's, I'd say, as time has elapsed, it's becoming more clear to them that really the only way to continue to sell that type of product, let alone even a better product, is by somehow taking advantage of our satellite. And I would say it's not anything dramatic, it's just a sense of awareness and sort of a, okay, let's start figuring out how to deal with this kind of attitude is the way I would describe it, and that's sort of what we'd expect. I think that if you look at what happened when WildBlue started its service, I mean, one of the biggest things was, okay, get the satellite up in the air, show that the stuff works and now, let's sign some deals. And I think that in our case, it might be a little bit accelerated, but certainly there's a component of let's get through all the rest of this stuff and then yes, there's a demand in the market for it, and this is the way to fulfill it.

Great. Then on the financing front, it sounds like you guys are getting pretty good feedback from prospective lenders with respect to the self-financing option, but do you have sort of a contingency plan if it turns out that when it comes time to draw down that financing it's not as available as you would have thought? Do you have an ability to sort of throttle back your expenditures to give yourselves more self-funded runway, if you will, in a tougher environment.

Those are a couple good points. We have put a list of factors there that sort of give us some maneuvering room in the event that we -- that we need more maneuvering room, so we're always trying to maintain that, but then the other factor is, you put in place a credit line, and it works. We've tested it, and we can use it, so that gives us confidence in being able to stay on the trajectory that we're on as well.

Is that about 80 million available still on that credit line?

Yes.

Great. One final one for me if I could. Just the non-GAAP tax rate that you are expecting for the fourth quarter, is that similar to your full year tax rate?

4Q is higher.

Yes, it will be a little bit higher, probably be in the mid-20s.

Okay. That's helpful. Okay. Thanks for taking my questions.

Thank you.

Our next question comes from Myles Walton with Oppenheimer.

Thanks. Good evening, guys.

Hey, Myles.

To follow up on the tax while we're still on topic, 2010, what is the implied tax rate that in guidance right now?

About 29%.

Okay. And, Mark, you mentioned fiscal 2010. Wondering if you could provide any color on the growth between the two businesses, governance and commercial. Is it fairly balanced, and any particular color you could provide within the segments would be great.

Sure. This is Ron. For our government segment next year we're expecting growth of #% year-over-year, mainly coming from the information assurance and satellite communications product revenue side, and on the commercial side, we're expecting revenue growth of about 15%, mostly from our mobile broadband and enterprise VSAT products and services and growth from Accelernet as well.

This order you mentioned in the press release, with respect large international VSAT award in the quarter, was that really driving the back to bill in the quarter, or was the book to bill more reflective of broader orders?

That was a big contributor to our total orders. An important contributor to total orders.

Okay. Does that particular order materially improve the near term profitability of that business?

Yes, to the extent's a big project, and, yes, it will be helpful.

I think what we've been telling you guys, we have restructured the business, we've actually combined our enterprise VSAT and our consumer broadband business from an engineering and program management standpoint. We've taken costs out, so we've lowered the costs so that we think we can be profitable in there anyway, but certainly a project this size will help us.

And with respect to the -- kind of the necks stages for Blue Force tracking 2 and tying that into F BC BT, you mentioned following the quarter some smaller awards that we've been expecting. What's the next step to look for in terms of adoption to get a better feel as to what over the next couple years this could mean?

Well, the -- just to recap, we had a contract, this $10 million contract for basically a prototype demonstration, which went well. I think that we talked about the benefits of that, and, I mean, the main benefits being able to provide more frequent updates, having -- be being able to provide more information for update, having more robust reliable communications to the platforms and being able to add to the range of platforms, they can support, so those are all good things. What they -- the theory was, to show they're possible, then go into a low rate initial production, to show that it's sort of producible, tested on a broader scale.

Then I think the next step has been to figure out how to get under production volume contract, and that -- and I would say that, if anything, there's really two parts, besides the part that we're doing, there's another part that comes in, which is an enhanced security module, which adds type 1 security. So I think that right now the government is considering options that might actually accelerate that deployment, and sort of where we're waiting on is to see what exactly that means from a procurement prospective, how they will do that. And I would say that will become more clear probably towards the end of this calendar year.

Okay. And then just one more quick one for me. Can you talk about your go to market strategy with ViaSat 1 in the military context? Obviously the DoD is a pretty healthy procurer of commercial bandwidth, and one of their largest contract vehicles is kind of going into RFP in 2009. Will there be -- or are you going to market through more typical channels, like this particular concept vehicle, or will it be, I guess, less structure than that?

I think it's going to be a little bit more -- it will be a little more creative, I would say. If you look at the contracts they have now are really more oriented around buying sort of commodity -- that they can specify and obtain for multiple sources. So our strategy basically, I'll give you a good example is we did, as I mentioned, KU brand broadband, on ISR platforms. This is just one example, there are others, but this is a really good one. One of most important things for them is getting information off the platforms, what are the rates at which they can transmit? If you take the capabilities of a satellite like ours, the same would be true of K A sat in Europe, and we really look at this as we're selling a capability as -- whether it's owe there are applications in the US, those could be DHS type border patrol type applications, different applications in Europe. We're trying to make the customers aware of is that when you have a satellite like ours, which is very unique, you can take capabilities that you are already using with us and get, for instance, a factor of 8, or 10 higher speeds off that platform, which are very, very important to them, and can only be done with this type of satellite. And so what we're doing is we're going around DoD and making sure people understand it. Another value proposition is higher speeds and much lower costs for the same speeds. Obviously for our own satellite in the US, the purposes of that would be more for training, technology, capability and demonstration, integration, those -- and possibly some DHS applications, north com applications in Europe or areas that are covered by KSAT, they would be probably more operational mission oriented. Does that help?

Yes, it does. Would you actually anticipate prior to kind of launch or within the next 12 to 18 months to actually enter into any formal arrangements, or is this going to be more, if you build it, they will come?

Actually, I would say there will be some of each. One of the things that we're aiming to do is point out what would be needed for ground equipment to take advantage of the satellite capabilities, both in the US and Europe, and I think what we'll see is that -- is customers who are really interested in that will probably get started on the concurrent ground stuff in advance, so that it's ready, when the satellites are there. That's -- and we don't have that lined up yet, but that's sort of what we're aiming for, and it seems reasonable. That would sort of pave the way for the services, and some things that we'll do will probably not happen more until it's in service, or their agent's service.

That's helpful. Thanks a lot.

Thank you, Myles.

We'll go next to Steve Ferranti with Stephens, Inc.

Hi, guys, good afternoon. Just following up on the Blue Force tracking question, Mark, is there any insight that you could provide in terms of what you guys are hearing in terms of the army's plans for rolling out the new systems when that actually begins and will it be a -- it will be a retrofit of existing units or will these be deployed sort of in parallel with the existing solution? Is there any insight that you can give us there?

There's some space news and defense news articles that talked about sort of the government's reaction to the capabilities that they were very positive about them. One of the things they're looking for is to try to figure out how to get them into market as fast as possible, and that's basically what we're seeing. Now, there's sort of contractual and procurement issues that go along with that, but that's -- what I would describe as the general trend. I think that if you look at would would happen with our units, should we continue to keep going, the way that we're -- on the path that we're on, they'd almost certainly go into new deployments. I don't think that they would be de-commissioning existing stuff because they're trying to get the capability in general on a broader range and platforms, as opposed to just merely upgrading the coverage that they already have. Does that answer your question?

It does. And then would it be fair to assume then that the new solution, then, would work interoperably with the existing solution?

No, I think that -- I mean, the way to think about this is there's kind of a control hub that goes with this on each satellite, and each of the fiber terminals are pretty much connected to that hub, then you can take the data, and it's easy to consolidate it from a battle management perspective, you can consolidate data, let's say BFT 1 and BFT 2, but you couldn't take a BFT 2 terminal and attach to the a hub that's run by BFT 1. It's just not possible, no matter who did it, because in order to get the benefits they want, they need different wave forms and maybe even space segment assets. So what you are going to see is sort of a BFT 2 capability that goes alongside BFT 1.

That's actually very helpful. And then I guess just turning toward the fiscal '10 guidance again, just trying to get a sense for how you balance some of the opportunities that you have, and I think you used the term -- some of them have quite a bit of potential energy that you used the term in your prepared remarks, but how do you sort of look at these opportunities and sort of balance the potential for these in the future and come up with some sort of mechanism for providing guidance?

That's a really good question. That's the big trick in managing this business and always has been for a long time. So what we do is we have kind of a grass roots bottoms up estimate that we do every quarter, and in that every quarter we try to anticipate the likelihood of certain things happening, the time frame in which they'd happen, and then we tend to roll them up, and we look at that multiple ways. And, you know, when you go through that process, over the course of years and years, multiple quarters, you will see some things sort of rise and fall, depending on how we're doing on the programs or the timing of those programs. And that's the big balancing act that we always go through in trying to anticipate the -- one of the things -- and the way I'd put it is what you want is something that you have a lot of visibility into in the next quarter. Pretty good visibility for the next, say, year, and probably less in the out years as you allow time for things to settle. And so the biggest thing for us, over the next couple quarters, the thing that helps us, especially given all the uncertainty, was in the economic environment is our backlog and the fraction of sales that come from backlog, and that's actually probably stronger than normal in the -- kind of the upcoming couple of quarters or so. Sort of normalizes as you go back, go out in the second half of next year, sort of more typical. Does that help you?

Yes, absolutely, that's very helpful, and I guess related to the backlog question, commercial backlog seems to show some pretty good strength. What are your -- in terms of your consumer broadband partners internationally, is there any sense that they my be slowing down deployments just in light of the current economic conditions or are they sort of marching full steam ahead?

What I would say, and this is sort of an observation on our part, there's opposing forces in the broadband front. One is that clearly tough economic times make for tougher going for anything consumer oriented, but, on the other hand, there's so -- if you look at so much of the economy everywhere, it is becoming more on-line that that's sort of an opposing force, which in the broadband world is something, let's say in the broadband world, in economies where broadband means PC's at home, places like Europe, Australia, Canada, the US, and those kinds of places, I would say the sort of compelling need to have broadband and the fact that penetration is still not as high and universal as, say, television, pay TV, or cell phones that we still have that force working for us, and so we don't really see -- we don't really see that backing off in the US, in the WildBlue situation is probably pretty good indicator of that. I think penetration in a few years, if penetration is a lot higher it might be different, but right now there's sort of that force that seams to be a balancing factor. Also, everywhere you go, including in the US, everybody sees broadband as a sort of key enabler for competitiveness on a national basis, so those are all, I'd say, positive factors for where we are right now.

Right, actually, that was going to be my last follow-up, was sort of how much of a factor is government involvement in some of these broadband to the masses roll-outs in the international market? I know Australia had been talking about some activity along those lines. How much of this will be driven by government sponsorship?

I would say -- I would describe government sponsorship as in some cases more of a sweetener. So let's say -- well, in Australia, it may be more of an enabler and a gating item, because it's not so clear that somebody would put a satellite over Australia, for a variety of reasons, absent some kind of government involvement. In Europe, where there's a really big population and there's already a free enterprise case, I would say government participation is more of a sweetener. It will help in distribution, and it might speed up an option, which certainly can help with the financial returns, but I don't think it is a gating item. But in general, I would say that, especially in an environment where unemployment, almost every government in the western world that we see looks at something that would stimulate broadband adoption, and availability, and part of our mission, and we've been working with on this for over a year, is to just help them understand exactly where the unserved and underserved people are and why satellite makes sense as a compliment of their strategy, and that seems to be working.

Great. Very helpful. Thanks for taking my questions, guys.

Thank you.

We'll have our next question from Chris Quilty with Raymond James.

I wanted to follow up on the broadband opportunity, I guess you're projecting 15% growth tin commercial business. If you excluded the one large VSAT order, are you still expecting to see growth in the broadband business next year?

Yes.

Okay, and that's primarily from incremental sales into Utilsat versus WildBlue? Or does WildBlue work off some inventories and you get some lift?

Part of what we were talking about, I would say right now WildBlue's unit take rate is lower than their gross add rate, so that's why. Ultimately you would think there would be some equalization, normalization. Then, yes, we see growth in Europe, then also additional infrastructure, broadband infrastructure kind of projects and contracts as well.

Okay. And I know you are a second order away from this, but with the current economic environment, is it your impression that WildBlue's uptake rate has been impacted or not by consumer credit and spending?

We are one step removed. We try to understand it, and we talk to them a it lot, and it seems like that -- I'd say that's not the dominant effect. I think the dominant effect on their adoption rate from our perspective right now is really capacity. And you have to look -- part of that is, there's sort of natural demand in these high-demand areas, which are the ones that they've sold out quickly, and that's actually is where our satellite is aimed. What happens is, once you sort of run into the limits there, you just have to work harder to generate the same numbers, I mean, it's just classic, like any -- like satellite TV. If you look in, kind of the rural states, the penetration rate for satellite broadband and those states is higher, substantially higher, than it is in the more developed and more urbanized states, but the absolute numbers are a lot lower because the population density is so skewed, and that's exactly the situation so you have to work a little bit harder in the low demand areas than you would if you had more capacity in the high demand areas.

Okay. And have you provided a CapEx spending number for next year on the ViaSat 1?

No, we didn't.

Could you?

Yes, I can. Give me a chance. So this year, through the third quarter, we spent over $85 million. We expect another $30 million or so in our fiscal fourth quarter, and then next fiscal year we expect capital outlay to be about $15 million or so lower than this fiscal year, so that -- the first year was a heavier spend than the second year.

Is that the natural progression, or are you slowing production to preserve cash?

That's just based on the natural schedule right now.

Okay. And if we model in here company borrowing what would you expect would be the borrowing rate in today's current market environment? You were talking about increasing the size of the credit facility?

Well, I think there's a lot of factors that go into it. There's -- and then there are these what are called LIBOR floors that people are requiring in agreements and the different spreads, depending upon your leverage and how much that leverage is. We think that you can increase the facility and execute properly and maybe even lock it in through a swap arrangement in the 7.5 to 9% range, depending on how much you are looking at.

I think one of the thing we're trying to do, Chris, is to tray to create as much room before we have to do anything, so we have -- so we have options.

Okay. A question you mentioned in your script, Arc Light orders for ISR platforms. Were you referring to aviation or ground vehicles?

Aviation.

Okay. And question on the BFT. There's a BFT program, pretty big gap between yourself and the incumbent, com tech. They just last November got an -- Army sources notice that looks to increase, it reads very much like their contract from $216 million up to $833 million, the language of the source selection states specifically that everything has got to be backward compatible with Comtech. So I'm just trying to understand, what would be your response to an environment where they're increasing spending for the legacy provider, where they are going to find incremental money for a BFT-2 solution in what's increasingly a tightening budget environment.

There's been -- there's two -- if you go down, just kind of chain of command, there's two different organizations. There's one organization that operates and maintains BFT-1, there's another working on the battle management program that has BFT 2 as one of the enablers to do the battle management functions so our customer has been the organization that's doing the battle management and the BFT-2 development program. So that's basically the view that we have. Clearly, everyone knows that Comtech like to have that go away, so that's -- I mean, I think that's what -- that's sort of what the inconsistencies are in the views.

So let the bureaucracy fight it out.

I think there's a lot of benefits.

I'd say it's a big, complex program. I think com tech is a very competent and capable company. They've got an existing program, and they are going to do their absolute best to perpetuate it. So that's what would you expect them to do. But there was a competition for BFT 2, and we won. So that counts for something, and so far he we've been performing, and there's been a plan to integrate it in, so obviously we don't want to just feel like because we won the program, everything will automatically unfold in our benefit. I think people should give us some credit for being fairly savvy ourselves about the procurement environment, and that it would probably be best not to go into too much detail about all the competition nuances. But the way I described the top level is pretty much that's the case.

Okay. They didn't submit for that bid in that contract, did they?

For BFT 2?

Yes.

There were other bidders. I'm not sure -- I actually am not sure if they did or not. I don't know why they wouldn't have, but they may not have. I don't know. I know there were other bidders.

Okay. Question on the MIDS J program. Reading the headlines with the change in administration, some of the key programs that they constantly talk about getting canceled, future combat system, the F-22, and Jitters shows up on that list. First of all, maybe your point of view on whether that can, should, or will happen, and if so, how that might impact the funding and the future deployment of a MIDS J solution.

So on Jitters what I would -- you have to sort of separate between Jitters, the program, and Jitters the operational need. So there are definitely high-profile very big budget Jitters programs that are --

You forgot to insert poorly performing.

Well, did you that. But there's these programs, right, they're well overrun. There's issues with the programs, but there are clearly functional and operational needs among platforms and users. Whether FCS happens or some of these other programs, where specific platforms need new radios. You can think of Jitters at a high level as being the way they developed those radios. So if those radios aren't available, or aren't completed, there will be some other radio to go in there. You can see there are -- Harris is a very good example, Harris has been very successful with their falcon program, they can see that as an alternative to jitters radios in certain applications, and there are other companies that have similar aspirations to different degrees. For us, what we would do is look at those radios that require advanced data link capabilities, similar to link 16, and there are other links that are similarly complex, where we think we'd be uniquely positioned, and that's really -- that's the environment that we're looking at, and it's -- in some sense, you could almost say that cancellation of a particular jitters program might actually benefit us in that case, not hurt us.

As a well performing program.

Yes, we're basically, and also as a potential source of complex radios for specific platforms. Now, personally, what I think is that when you look at the total Jitters programs, the GMR programs, the AMF program, there's really two aspects to them. One is the integration, the systems integration role, and that's especially true on these big airborne and maritime platforms, that those programs would probably still have a need and purpose in life if all they were doing was integrating radios that came from other sources, and those integration problems are probably less overrun and extended than the actual product development aspect of those programs. And there's no guarantees in life, but that's the environment that we feel creates a good opportunity for us, and it's not just speculating on the sidelines. We're involved with a lot of these platform programs all the time and you can sort of see the ebb and flow of their view of the availability radios from these other programs.

Final item, I may be splitting hairs here, in the context of lots of my companies lowering guidance by 25% or whatnot, but you said you were maintaining guidance, but if I look at your last presentation it looks like the top end of the GAAP EPS came down $0.07 and top end of the revenue range down by about $30 million. Is that fair, or was there some sort of pro forma adjustment I missed between the quarters?

Well, we used the same guidance chart as we used last time, so --

Somebody monkeyed with it before they put it up there. I'm looking at the two of them right now next to each other, and your old slide said here that the GAAP EPS was in a range of, oh, sorry, I just closed it -- your GAAP EPS $1.19 to $1.29. New slide says 1.17 to $1.22.

The GAAP numbers mostly are reflecting an update into the amortization of intangibles and some of the --

But that was $0.02, and this is a $0.07 differential, and your old slide said revenues.

On the top end.

Right.

So the top end came down a little bit, and the top end of the revenue rang was $6.30 to $6.70 --

I know what happened. I think we had -- I think the last time when he we talked about this if you go back to the conference call script, we guided towards the lower end of that range.

Okay.

So I don't think --

So we thought we would appropriately narrow the range from putting up the chart this time.

Okay.

So thanks for pointing that out. I guess what I would say is, if you look at sort of what was out there, people's expectations I think we're right in the range.

I agree, relative to consensus, you're looking good.

I think that's what we said last time.

I think that was in terms of --

Okay, sorry to split hairs.

That's okay. Thanks for the clarification. Okay? Next?

We'll have our next question from Mike Crawford with B. Riley & Company.

Just a couple points of clarification. You said that some R&D shifted from internal to customer-funded development. Was that shift unexpected, and what are you thinking about this going forward?

It wasn't unexpected. It was the artifact of how the nature and timing of orders that we got. So that's why, just trying to describe why R&D is what it is year-over-year.

Okay. And going forward, would you expect the unfunded R&D to remain similar levels, or is that going to bounce around?

I would say for the fiscal fourth quarter, it will be similar to what it was this past quarter, and next fiscal year we're forecasting some modest growth year-over-year, but consistent with what we normally do, we look at our backlog of funded development programs, our -- what some of our current opportunities are for company-funded development, and we make those trade-offs accordingly.

Okay.

It depends on would programs we win, what development programs we win, and ultimately, what our overall margin looks like and whether we have the opportunity to spend the R&D.

Then just to be clear on some of the CapEx, you have so far capitalized $85 million on ViaSat 1. You expect to capitalize another $30 million In Q4, and $100 Million next year. Is that correct?

I would say it's a little bit less than $100 million next year.

And that would leave another, what, $80 million or so before launch and operation?

I think what we've talked about is in the range of $400 million at launch, and that was for the satellite launch, insurance, as well as a rollout of some of the gateways, and we would have an opportunity -- we've negotiated good contracts on the satellite and launch vehicle in terms of flexibility should we need to make any modifications, and we control the timing and rollout of the gateway sites. So we would have an opportunity to adjust those schedules as well.

Okay. But right now, it's looking more like towards the end of 2011?

The launch, the launch, yes, fiscal 2011. Towards the end of fiscal 2011.

First half of calendar 2011.

First half of calendar '11.

And so that's the ViaSat 1 CapEx. What about the overall CapEx?

Last couple years we've been running in the 20ish million range for normal CapEx and, that's been robust in facility expansion and build out of labs to support that. We see that amount coming down several million dollars, maybe $5 million, $7 million next year.

Okay. So what was the total CapEx in the quarter?

This past quarter?

Yes.

It was about 30 -- I believe 34, let me bring out my notes, if I can -- 34 -- almost $35 million for the satellite, and another $5 million for property and equipment.

Okay. About $40 million. Okay, great, thank you.

Thank you.

Michael French, Morgan Joseph.

Good afternoon, gentlemen.

Hi, Michael.

Can I get the depreciation and amortization for the quarter?

Yes. Depreciation and amortization -- let's see. Give me a second.

Do you want to ask the other question meantime?

Go back to CapEx. I assume the Aerion Fibride is going to cost you somewhere north of $100 million, and you mentioned that you have some flexibility in the schedule. Wondering what sort of the baseline schedule looks like. Will you be making payments on that, in the 2010 fiscal year, or is it really back end loaded?

We had an initial down payment that we made when we signed the contract, then we go several quarters without payment and then they're of a similar amount as our down payment over -- in the latter half of fiscal '10, and then they increase in fiscal '11.

Then the balance is paid at launch?

Yes. That goes -- goes into launch. Okay. On your CapEx -- I'm sorry, your depreciation and amortization total for the quarter, was about $7.3 million.

Okay. And on the large commercial VSAT network that was announced in the quarter, and I know you can't provide a lot of details, but can you give us some sense of when we could expect, assuming they get all their documents executed, when we would expect to see revenues showing up on that and what the ramp would look like for that program?

It's this quarter. That would be -- it would be this quarter, and -- I mean, it's -- probably over a 6ish quarter time frame, kind of that year and a half time frame, spread out.

Evenly spread out?

It's not -- it's like lighter in the first two quarters, because there's a lot of -- a fair amount of development. I just think we can't give you too much guidance on. That as soon as it happens, we'll talk about it.

Okay. Can you give us any sense of the region that it's in?

No.

No.

Okay. Fair enough. And just a quick one on the government side. You mentioned a few contracts that are -- or programs that are working their way through, particularly the mid Jitters, lowering production in the summer. Is there anything coming up for the March quarter that we're expecting decisions? Or -- and I'm just kind of comparing the bookings last period. $157 million in this segment. Are you likely to get -- is it possible we could see bookings over $100 million again here, or is it just not the case that there are that many programs in the decision phase at this time?

A lot really depends on the specific timing of the orders. One of the big swingers for us is always the annual mid LBT production lot. It is possible that will be in the March quarter, in the December quarter.

Also, I mean, on the government side year to date our awards are almost $350 million year to date. So they had really heavy awards in Q1 and Q2.

It's just hard to predict the timing, and we don't like to. I mean, what we pay more attention to is does the program happen, does somebody else get it, does it go away, those kinds of things.

And one more last small one. Ron, you mentioned that SG&A dropped year-over-year but it came down slightly sequentially. Was second quarter kind of a peak for SG&A, or should we look at this $23 million as sort of the --

Yes, it was a peak. There are some of the items related to our, for instance, some legal or support costs for ViaSat 1. Can be lumpy, depending upon what activities we have going on. The other thing was, our selling costs were really high in the second quarter, because of our really, really high awards that took place. So there can be some ebbs and flows on higher selling costs relative to awards.

557 for the second quarter? Okay, great, thank you, gentlemen, and good luck.

thank you.

We'll have our next question from Jim McIlree with Collins Stewart.

In order to hit the $630 million for fiscal '09 you need about a $20 million increase in the March revenues over December. What would be the primary driver or drivers for that increase?

Well, there's -- I mean, I would say it's balanced between government and commercial. We're -- without going into a lot of specifics, we see growth in our information assurance and our government sat com area as well as our unmanned aerial vehicles. And our satellite products area, and those would be the primary areas.

But it's not any one major project like this government -- excuse me this enterprise VSAT project you have mentioned, or, a MIDS order or something like that? It's a balanced quarter-to-quarter growth?

Yes.

Great. And would you expect there to be another MIDS lot order after, what are we on now? After lot 11?

Yes, we -- well, it's going to be -- what they have done is they've reached the end of their legal extension of the current contract phase. They're currently in the end of a new contract they're under, so whether they will be 11 or lot 1 under the new contract, whatever it will be, but there will be multiple additional lots. One of the things that they're -- they will continue to buy ongoing production lots for the US but what's really -- the FMS orders are going to dominate the future production lots -- also there technology enhancements intended for the existent MIDS LT units, so that will include new development for that, and that's certainly part of our outlook going ahead is those new technology assertions, one example we've talked about is an update to the security aspect of the existing MIDS LVT, so that will be an area we'd participate in for sure, then there will certainly be ongoing insertions of that new developed technology into the existing LVT base. So it's not like the LVT program goes away. That's why we've sort of described it as layering the MIDS J on top of a cresting LVT. Does that makes sense?

Makes a lot of sense. Round numbers, what's the installed base of MIDS LBT terminals that you have delivered?

We've delivered a couple thousand.

I know what the number is.

1500. It's installed base, it's -- I should know that. It's probably in the 1500 range. We will -- we can get you more detail.

We will post it on the website, Jim.

Okay. Great. Thanks a lot.

Thank you, Jim.

And we'll have our final question from Rich Valera, Needham & Company.

Thank you. Just a quick one. Cash flow from operations, still expecting $50 million for the year?

Yes.

And for fiscal 2010 should we think of a similar number?

We think it should be higher. We're expecting a higher mix of product sales plus revenue growth, so we think it should be higher.

Very good. Thank you.

Just back to that point, Rich. Cash is harder to predict than revenue because if a large thing slips a few days, it can fall outside the quarter, so I'd just caution you on that. It could fluctuate within a couple of weeks, and essentially be the same numbers.

But the macro trends are as you described.

Okay, thank you.

Okay. So I think that we appreciate all of the questions, and that completes our call for today. We look forward to speaking with you all again next quarter.

That does conclude today's conference. You may disconnect at this time. We do appreciate your participation.