Viasat Inc (VSAT) 2009 Q4 法說會逐字稿

Welcome to ViaSat's fourth quarter 2009 -- again, fourth quarter earnings conference call. Please be aware, today's conference is being recorded. At this time, I'd like to turn your conference over to your host, Mr. Mark Dankberg, Chairman and CEO. Please go ahead, sir.

Thanks. Good afternoon, and welcome, everybody, to ViaSat's earnings conference call for our fourth quarter and fiscal year end 2009. I'm Mark Dankberg, Chairman and CEO, and I've got with me Rick Baldridge, our President and Chief Operating Officer; Ron Wangerin, our Vice President and Chief Financial Officer; and Keven Lippert, General Counsel. Before we start, Keven will provide our Safe Harbor disclosure.

Thanks, Mark. I'd 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 these statements. The risk factors that can cause actual results to differ are discussed in our SEC filings including our most recent reports on Form 10-K and 10-Q. Copies are available from the SEC or from our website. With that said, let me turn it back over to Mark.

Thanks, Keven. We'll be referring to slides that are available over the web and we'll start with top level highlights and our fiscal year 2009 fourth quarter and year-to-date financial results and a business overview perspective and then some highlights and discussion, and after that Ron Wangerin will discuss our financial results in more detail and then finally I will update our outlook for next fiscal year and summarize things, and then we'll take questions.

So starting with a top level summary. Our fourth quarter was a good strong finish to a record fiscal year for us. Obviously, when we began our ViaSat-1 broadband satellite initiative we anticipated that the cash we had on hand, our core business performance would serve as the financial foundation for the project. We're almost halfway through it and so far that has been the case. We're pleased with the quality of earnings as growth and operating income drove gains in both earnings and earnings per share and resulted in excellent cash flow.

Fiscal year 2009 orders exceeded revenues by 16% increasing our backlog by $100 million and we are experiencing a surge in new proposal activity. So despite the macroeconomic environment, our management outlook for fiscal year 2010 still anticipates about 10% growth in both earnings per share and revenues. We have a pretty broad base of growth opportunities which we believe adds a measure of resilience.

Finally, the ViaSat-1 project continues to perform on schedule and we have been able to reduce the budget by about 10%. So a base case for fully financing the project is close at hand. While we do expect others to imitate our satellite design, we believe we already have a quite compelling time to market advantage for the level of service and price points we expect to offer plus our go-to-market approach seems to resonate well as we have been negotiating distribution relationships with potential partners.

So now turning to a fourth quarter financial summary. Overall, we're pretty happy with those results. Earnings and cash generation for the quarter and the year as a whole have been consistent with our plans. New orders for the fourth quarter were within our expectations. Fourth quarter financial results were good and in line with our objectives, revenue is up about 12% over the same period last year to about $165.6 million.

The earnings picture was good, all things considered. Income from operations was up on a year-over-year basis by about 11%, about the same as revenues. Income before tax was roughly flat, primarily reflecting reduced interest income due to lower interest rates and a lower average cash balance. Our tax rate was lower, largely due to timing of R&D tax credit legislation. The 11% increase in operating income resulted in about a 12% gain in non-GAAP diluted earnings per share and a 15% gain in GAAP diluted earnings per share and that translates into GAAP diluted EPS growing from $0.33 to $0.38 on a year-over-year basis and non-GAAP diluted earnings per share growing from $0.41 to $0.46. Ron will go into more detail on a couple of other factors which we believe are indicative of strong core business performance when we get to his portion of the call. But overall, we believe earnings quality was excellent and that was further substantiated by the exceptional cash flow.

Turning to the year as a whole, overall we feel like we had an excellent fiscal year with record awards, revenues and net earnings. The $728 million in awards were very good and resulted in a nicely favorable 16% advantage in book-to-bill for the year. Backlog, as I mentioned, grew by about $100 million which helped lend some confidence to sustained growth outlook. Orders were quite lumpy over the course of the year which is not that unusual for us.

Income by operations grew by about 3% for the year as a whole compared to about 11% in the fourth quarter, still net of the interest income and tax benefit effects I described on the previous slide that translated into about a 15% year-over-year gain in both GAAP and non-GAAP diluted earnings per share. GAAP diluted earnings per share increased from $1.04 in fiscal year 2008 to $1.20 a share in fiscal 2009. Non-GAAP diluted EPS grew from $1.36 to $1.57 this year and Ron will also go into more depth on some additional factors people should consider in comparing year-over-year earnings results.

As we've described in the past, as a management team we usually aim to achieve our earnings objectives while investing in business areas that we believe will contribute to growth in future periods. This year our lower tax rate gave us more flexibility than we had last year when the tax rate was exceptionally high. We'll point out areas where we've done that as we go through the business areas and highlights portion of the call.

Now we'll touch on some of the highlights for our business areas. We'll start with government business which continues to lead our financial performance and we believe our outlook is good in each of these sub areas. In general, we believe our positioning in defense is favorable relative to the recent reprioritization outlined by Secretary Gates. Other than the TSAT program, there was little in the way of terminations or curtailments with any impact on us. The emphasis on special operations and innovative procurement approaches would seem to benefit us. Our sense of the breadth of opportunities we have is reinforced by a recent surge in proposal activity. As Ron will describe subsequently, that was a factor in higher SG&A expenses but a positive from a growth outlook perspective, especially when we have the margins to support that.

The MIDS joint tactical radio system, or MIDS JTRS, continues to makes good progress and still seems to be the most mature of all of the joint tactical radio system programs of record. Current plans call for award of the MIDS JTRS low rate initial production program this fiscal year and plans for phasing MIDS JTRS in as the successor to the MIDS low-volume terminal or LVT program are being realized. Meanwhile, plans for cryptographic modernization of the existing MIDS LVT deployed product base are also progressing along with other anticipated upgrades to that version. While US MIDS LVT production is tapering off, we see relatively steady demand on the international front as well as growth in services and support business along with the product upgrade program.

We're also making really good progress on our new smaller low cost Link 16 terminal variant which has generated exciting interest for both domestic and international applications. Our relative standing in the Link 16 weapons data link market has improved significantly over the last quarter as well. While data link earnings and revenues will not grow in our fiscal year 2010, we see good opportunities for significant growth in new orders and sustained growth in subsequent years.

The information assurance business is coming off an excellent year for growth in inline network encryptor products such as the KG-250. Overall, it appears the DoD environment should support continued growth in those inline network encryption products this year as well. We're also seeing a surge of new proposal activity in the IA area. That includes a mix of follow-ons to existing programs and some new opportunities as well, especially in information assurance projects. While we haven't been directly involved in cyber warfare initiatives to date, we are beginning to pursue that area with what we believe are some unique technology concepts.

Our fastest growing and most profitable defense area last year was satellite communications, this area has benefited the most from defense applications of our commercial technologies and products. Key growth areas for us have been in the defense VSAT area, especially with government versions of our LinkWay product, the new joint IP modem program, defense applications of our ArcLight mobile broadband system and the Blue Force Tracking 2 prototype and low rate initial production contracts.

This year we also see good opportunities in two additional areas. Cancellation of the transformational satellite, or TSAT, program highlights the need for innovative new approaches to high speed broadband satellite for several DoD missions. There is interest in inserting new technologies that would have been deployed on TSAT into follow-on Lockheed advanced EHF satellites, and those areas overlap our role with Lockheed on TSAT to a considerable extent, so that's a good opportunity for us. We've also recently had a number of discussions with DoD on leveraging the technologies and the capabilities in our ViaSat-1 satellite and the associated ground network and in the satellites of our partners such as Eutelsat. Those results have been quite encouraging and we are pursuing a combination of near and midterm avenues for bringing that to DoD.

Finally, as the mobile user objective system, or MUOS, the next generation of UHF mobile satellites is getting closer to launch, there are significant opportunities for us in the ground networking area that are direct consequences of our large deployed base of current generation UHF terminals and network infrastructure. In general, we continue to see good opportunities for us to grow in the current DoD macroenvironment, and we've reason to believe we may have a lot to offer to attain the goals the administration has identified.

Turning to commercial, our commercial product and services revenue as a whole declined slightly in fiscal year 2009. But bookings were strong, exceeding revenues by over 30%. On a top level, that's consistent with our overall strategy to gradually evolve our emphasis towards satellite broadband applications over the more conventional VSAT market which we believe will yield more enduring and profitable growth.

Sales of consumer broadband to WildBlue in the US actually contracted a little, primarily as they work to reduce inventory and consolidate their pipeline. Demand for broadband service remains good with WildBlue essentially operating at capacity in many parts of the country. We continue to work with them on technical approaches to add capacity to their network. They are also working to stimulate demand in the beams of fewer potential total subscribers. It is possible that broadband stimulus funding could help WildBlue there in the next year two. The success of Ka-band broadband has stimulated interest internationally and in other segments beyond consumer.

Our volume lead, product maturity and upcoming capacity on ViaSat-1 and Eutelsat's KA-SAT create competitive advantages, although there is still significant competition in each new opportunity. The Australian government has a specifically identified third generation satellites and that's exactly what our high capacity ViaSat-1 is, as an integral part of their broadband infrastructure program. We think this is a strong endorsement of our approach and is consistent with our view that broadband satellite services will be far more effectively addressed by integrating the space in ground development approaches. We are participating in similar discussions around that same role in the US and in other countries as well.

Mobile broadband has also been a bright spot in our commercial satellite networks business. We believe that it is becoming more evident that the real issue there is also the cost of bandwidth. Ku bandwidth costs are much lower than more traditional mobile frequencies for many applications, but we believe that even Ku bandwidth costs are not really good enough for the market and Ka-band will begin to make an impact in this market next year in Europe and the following year in the US. We see good opportunities to integrate Ka-band capabilities in to our emerging global mobile broadband network.

Finally, we also see good potential synergies between commercial and defense technologies in network service opportunities. Global satellite services are starting to go grow out as we now support several hundred users around the world. The business aviation market suffered last year but maritime grew nicely.

Our Antenna Systems business had a strong year in fiscal 2009. We see good growth opportunities in Ka-band gateways and teleports for broadband satellites anchored by significant production for ViaSat-1 and Eutelsat's KA-SAT. But we see good other opportunities in Ka-band antennas for fixed bound sites and mobile platforms. This is especially true as we've seen sufficient scale to more closely integrate our microwave integrated circuit capability with the Antenna speed and transi (inaudible).

The AcceleNet wide area network acceleration product, the financial results were pretty disappointing for the year. We had planned for that area to at least break even for fiscal 2009 and again had a significant loss, though smaller than the prior year. We're trying to sort out the various causes and effects because we think that AcceleNet is well positioned for a rapidly growing market.

We continue to place great value on our OEM relationship with Cisco, and we're working even more closely with them, but we're working to take steps to improve the performance in this area, which has significantly affected the profitability of our commercial segment as a whole for the past two years.

Overall, things are going well with our Ka-band project, the ViaSat-1 project is coming in on performance, on schedule and significantly under the initial budget. We've seen improvements in launch costs, insurance costs and in the ground gateways. We believe this reflects quite a favorable response among key industry players in the launch, insurance and fiber backbone segments which is something of an endorsement of our future in this market.

In the past it seems that some observers have lumped financing, distribution and strategic partnership issues for the project altogether as if to expect that we would resolve everything with a single transaction. We've always viewed those as separate issues and believed that we might make more progress faster individually and we do believe that we're making meaningful progress. One of the key enablers has been the demonstrations that we've been showing of about a 5 megabit down by 1.25 megabit up broadband service that would be similar to our notional mid-tier consumer service. That has been a huge help and has vividly illustrated how much better satellite broadband can be than existing services are.

We think everyone who has seen it has come away thinking that a satellite service at that speed and price point would be far superior to current receptions and is likely to be quite preferable to a lower speed terrestrial alternative. People have played around with the demo, trying all kinds of websites, type phone calls, video calls, and a number of streaming media services and downloads and agree that in most cases the sluggish response of existing satellite service is more often due to bandwidth congestion than propagation delay. That is a complete reversal from the current view that satellite is always the last choice, and that satellite subscribers will drop their service as soon as any alternative is available, and the potential retail distribution partners instantly understand why such a service is economically impossible with any existing satellite and that our time to market advantage with ViaSat-1 is becoming more and more of a factor.

Currently, we're also quite close to extending short-term debt capacity. Coupled with the cost reductions I mentioned and our cash flow to date that establishes something of a minimum essential manageable solution for financing the satellite, though not necessarily the ultimate resolution. We've become engaged in meaningful distribution negotiations with multiple candidate retailers. Having structured our entire business approach to appeal to those retailers seems to have resonated with their objectives in a way that existing services do not. That's also led to several strategic discussions and we consider those to be more definitive and realizable than they were previously. The purpose of just -- of the strategic discussions would be to reduce risks in financing distribution and/or execution while achieving returns on invested capital and long-term earnings per share that are in the ranges we've disclosed in the past. Of course, we'll consider reasonable trade-offs on risks versus rewards that are unique to each prospective partner.

To date there is really no reason to retreat from any of our objectives and we've seen evidence that prospective partners recognize that we've created significant value compared to alternative projects that might imitate ours but would at least be 16 months or more behind. We're working several international opportunities as well. While many factors are in play we believe that our large existing Ka-band lead, plus the market created by ViaSat-1 and Eutelsat's KA-SAT translate to a significant competitive advantage.

In the US we consider broadband stimulus a sweetener, not part of our basic plan. Nevertheless, we're highly engaged and we're putting efforts into understanding the process and communicating our perspective. While there are certain intrinsic aspects of satellite that all satellite services would share, we believe we are alone in our vision of allocating terrestrial like amounts of bandwidth to each subscriber. We have provided specific provisioning metrics that we believe are essential to providing a terrestrial-like broadband experience. We are not sure how that will be reflected, if at all, in the US stimulus policy. It is noteworthy in Australia the government there has explicitly identified third-generation broadband satellites like ours in contrast with the existing second generation satellites, such as Spaceway or WildBlue-1 along with fourth generation terrestrial wireless as a solution of choice in their national broadband infrastructure upgrade program for less dense markets.

The government there has initially identified that 3G satellite and advanced wireless are planned to support 10% of their total population. We think the opportunities are actually better than that in the US and are hopeful the US government will come to a similar conclusion. If so, we again believe our time to market advantage will be helpful in that ViaSat-1 would be the only satellite that could reach the market within the time frame identified in the legislation.

That gives an overview of kind of the business highlights and at this time I'd like to introduce Ron Wangerin, our CFO, who will discuss the financial data in more detail.

Thanks, Mark. We had a strong finish to a record year. Revenues in the fourth quarter were $165.6 million, a 12% increase over the fourth quarter of last fiscal year. We'll address the specific revenue changes later in our segment results. The cost of revenue percentage improvement year over year reflects a greater mix of higher margin product sales, primarily in our government segment. There is a significant difference in SG&A expenses in Q4 year over year primarily due to the Company's decision to forego discretionary compensation in fiscal 2008. Taking this into consideration, a normalized SG&A year-over-year difference would be about 10%. A growth rate commensurate with the expansion of our business overall.

R&D down 24% in the fourth 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 vehicles and broadband technologies. Quarterly amortization of intangibles is lower for the fourth quarter year-over-year due to the completed amortization of certain intangibles associated with our USM acquisition.

Income from operations from the fourth quarter of fiscal year 2009 includes non-cash stock-based compensation expenses of $2.3 million versus $1.6 million for the fourth quarter of fiscal year 2008. Other income decreased due to lower interest income earned from lower invested cash balances and significantly lower interest rates on those balances year-over-year. Our income tax provision for the fourth quarter reflects a quarterly tax rate of about 14% versus 26% in the fourth quarter of last year. The quarterly rate is lower primarily due to increased federal research tax credits in fiscal year 2009 because we received 15 months of benefit due to the timing of the tax legislation that was passed in this past fiscal year versus only nine months of benefit in fiscal year 2008. Minority interest was essentially flat year-over-year, we'll address the difference between diluted GAAP and non-GAAP EPS in a few slides.

Looking at our fiscal year results, our revenues were a record at $628.2 million, a 9% increase over last year. SG&A expenses are higher significantly year-over-year mostly due to the discretionary compensation decision made in the fourth quarter of last fiscal year which reduced fiscal year 2008 SG&A expenses, and higher new business proposal costs of about $4 million year-over-year which helped us achieve our record awards. We also had increased support costs for our increased business activity as well as legal and other costs associated with our Ka-band satellite initiatives.

R&D is down year-over-year but is still a healthy amount and reflects a high level of R&D in the first quarter offset by a reduction in the second through fourth quarters due to a shift in some of our development efforts going from internal development projects to customer funded development. Year-to-date amortization of intangibles is largely the completed amortization of intangibles. Income from operations for fiscal year 2009 includes non-cash stock-based compensation expenses of $9.8 million and $7.1 million for the same period in fiscal year 2008. Other income decreased significantly 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 1, 2008, to December 31, 2009, our income tax provision for fiscal year 2009 reflects 15 months of federal research tax credits versus only nine months of benefit for fiscal year 2008. In addition, we also recorded a tax benefit in our fiscal third quarter of approximately $1.8 million associated with prior year taxes. The net result was the lower tax rate of 15% for fiscal year 2009 versus 28% in fiscal year 2008. Given the planned expiration of the federal R&D credit in fiscal third quarter, we expect to only get nine months of benefit in this fiscal year and estimate our income tax rate for fiscal year 2010 to be approximately 26%. Minority interest decreased due to lower operating results of our majority owned TrellisWare subsidiary versus last year.

In looking at our segment results, in the government systems segments revenues for the fourth quarter were $109 million, a 30% increase over the same period last year. For fiscal year 2009 revenues were $388.7 million, a 22% 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 satcom systems revenues partially offset by lower sales of tactical data link products and development revenues.

In the commercial network segment revenues for the fourth quarter were $54.5 million, a 12% decrease over the same period last year. For fiscal year 2009, revenues were $230.8 million, a 7% decrease over fiscal year 2008. The year-over-year quarterly and fiscal year decreases are primarily related to lower consumer broadband sales as our largest customer in this market, WildBlue, experiences capacity constraints following new subscriber additions. This decrease was partially offset by increases in mobile satellite systems and next-generation consumer broadband development revenues.

For satellite services for the fourth quarter and year-to-date, sales were slightly higher for the same period as last year. In the fourth quarter the government systems segment achieved operating earnings of $17.4 million, an increase of 43% from the prior year. For fiscal year 2009 government segment operating earnings are $57 million, a 25% increase over the same period last year. The quarterly and year-over-year increase in operating earnings is primarily due to higher information assurance, unmanned aerial vehicle and government satcom product sales which tend to carry higher margins versus the same periods last year.

The operating earnings increase from the higher revenue and associated margins were partially offset by increased selling and proposal costs to support the new business awards and higher next-generation tactical data link information assurance and unmanned aerial vehicle R&D activities. Commercial network segment operating profit declined in the fourth quarter and year-to-date year-over-year. Although we experienced improved performance in mobile satellite systems area and Antenna Systems area, these were offset by reduced earnings from our consumer broadband products, continued investments in AcceleNet and automotive radar and substantial new business pursuit costs.

For satellite services for the fourth quarter, the operating loss was relatively flat compared to last year 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 incurred earlier in the fiscal year. For the fourth quarter of fiscal year 2009 operating earnings amount include non-cash share based compensation expense charges of approximately $2.3 million and were $1.6 million in the fourth year of fiscal 2008. For fiscal year 2009 operating earnings amounts include non-cash share based compensation expense charges of approximately $9.8 million and they were $7.1 million for the same period of last fiscal year. As we look at the diluted GAAP and non-GAAP EPS difference, non-GAAP results exclude the effects of acquisition related intangibles and the effects of non-cash share based compensation expenses net of tax. The changes year over year are primarily related to higher net and pro forma income as share count was relatively flat.

Turning to the balance sheet, overall our balance sheet continues to be very strong. Cash and short-term investments decreased by about $61.7 million from the beginning of the year, primarily due to the investments in our ViaSat-1 satellite project, but we'll talk about the movement of cash later when we review cash flows. Billed accounts receivable decreased by improved collection activities. Unbilled accounts receivable increased due to the timing of certain contract milestones primarily with our mobile satellite and broadband systems contracts.

Inventory is up by about $5 million from the beginning of the fiscal year primarily due to the continued transition of certain product lines to a units of output basis of accounting. Prepaid and other current assets are higher primarily due to deferred income taxes, an income tax receivable, and an increase in prepaid rent and supplier contracts. Goodwill and intangibles decreased due to regular amortization of our intangibles.

We are about 15 months into the construction of our ViaSat-1 satellite and today we've capitalized approximately $111 million through our fiscal year end primarily related to progress payments for the satellite and launch vehicle. Net property and equipment, excluding the satellite, is up about $3 million since the beginning of the fiscal year and reflects normal capital projects to support our various business growth primarily lab and production test equipment and facility expansion.

Other long-term assets are significantly higher since last fiscal year primarily due to the $7.5 million deposit on our Arianespace launch vehicle. We have retained our Arianespace launch contract as a backup for our ViaSat-1 launch or one that could be used to launch a future satellite. We'll make an additional deposit payment in this fiscal quarter of $2.1 million to bring the total paid to $7.5 million. No other amounts will be due under this agreement until we exercise an option to utilize it for ViaSat-1 or for a future launch.

Additionally, other long-term assets increased for patent filings and other costs associated with our Ka-band and global mobile broadband activities. If you include the change in satellites under construction and the Arianespace deposit, we increased our investment in the satellite by $110 million this fiscal year.

Accounts payable days outstanding remain consistent with historical averages. The biggest change in liabilities was advances which were down mostly in our commercial segment reflecting the timing of receipts and contract milestones primarily on mobile satellite systems programs.

The increase in other current liabilities primarily relates to higher performance compensation accruals and other employee related accruals offset by a payment of a secured borrowing in the first quarter associated with an enterprise VSAT program. The increase in other long term liabilities is primarily related to an increase in long-term deferred rent, long term deferred revenue and deferred income tax liabilities. Regarding the minority interest change, in the first quarter our majority owned subsidiaries 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 continue to have no outstanding borrowings leaving our full line of credit available less standby letters of credit. Including the effect of standby letters of credit we currently have about $79 million available under the line to support business activities and we're currently working with our bank group to expand this facility.

As we look at cash flows, for the quarter and year-to-date we had good flows from operations reflecting strong net income and non-cash add-backs along with changes in working capital. The result was cash generated from operations of approximately $30 million for the quarter and $62 million for the fiscal year. Monetizing our earnings provides a positive reflection of the quality of our earnings and the cash flow generation capabilities of our core business. Cash flows related to investing activities for the quarter and year-to-date reflect capital expenditures for our satellite project, business expansion activities and capital expenditures for licenses and patent filings also related to our satellite project and a payment related to our JAST acquisition. The $5.4 million paid in fiscal 2009 related to our Arianespace launch agreement deposit is reflected in cash paid for licenses, patents and other assets and we expect to pay an additional $2.1 million in this fiscal quarter. Cash provided by financing activities is primarily from stock issuance from our majority owned subsidiary and the net proceeds from common stock issuances offset by payments on the secured borrowing.

I wanted to do spend a minute updating you on the capital needs of our satellite project. Our forecast for generating cash from operations is a little better than our previous estimates and our outlook at the time we announced our ViaSat-1 project. This comes from the strength of our core business. We recognize our use of cash over the past year related to ViaSat-1 has increased substantially. We expect the amount to be spent in our fiscal year 2010 to be a little less than our fiscal year 2009. As we get closer to satellite launch and launching our service, the capital needs increase substantially. If necessary, we can slow the amount of capital in our fiscal year 2011 to the in-service time frame by reducing the amount spent for the Gateway rollout. There continues to be multiple options with regard to financing the balance of our satellite project. The path we have the most control over at this time is the self-funding option. Accordingly, we're working with our financial advisors and bank groups to increase our available credit. We believe we are very close with our current facility but are looking to expand it to improve certainty and provide additional flexibility. Now I'd like to turn it over to Mark who will talk about our financial outlook.

Okay. Thanks, Ron. So at this point I'd like to give a quick update on our outlook for the rest of the fiscal year and -- just for the next fiscal year, fiscal year 2010. Sorry. So, overall as I mentioned at the outset, our fiscal year 2010 guidance is consistent with our last quarter call which is in the range of about 10% growth. In the past we haven't provided quarterly guidance. Obviously it is a lot more difficult to anticipate, but in terms of thinking about the quarters, as a starting point, we think it would be good to review our quarterly earnings trajectories for the last year and prior years and build a growth model from there as opposed to reshaping the earnings over the course of the year. GAAP earnings per share would increase a little bit higher on a percentage basis than non-GAAP due to the completion of amortization of intangibles. So that's covers all of the information we wanted to provide.

In summary, I'll just go over that again. The financial results for the quarter and the year as a whole were good, especially considering the economic head winds. Commercial revenues and earnings were down only slightly relative to fiscal year 2008 but commercial orders were really good setting the stage for improvements in fiscal year 2010. Government was good and we anticipate 10% year-over-year growth in total for fiscal 2010 compared to the year just ended.

Growth outlook is relatively broad based and includes government satellite, information assurance and next-generation Ka-band, broadband and mobile satellite networks. Backlog at the start of the year and recent proposal activity helps lend some confidence to the growth outlook. We believe we're making meaningful progress in all aspects of our ViaSat-1 broadband satellite project. Cost improvements in the launch insurance and ground segments have reduced our total capital required significantly and core business performance and extensions through existing credit facilities are anticipated to be adequate to complete the funding in that context.

We also believe that the satellite broadband demonstrations we have shown have helped vividly illustrate the benefits delivered by having over 10 times the bandwidth of the next closest satellite. Potential retail partners have gotten a hands-on view of what it means to not only increase the advertised peak speeds, but to substantially increase the volume of bandwidth available to subscribers. That's helped initiate a series of meaningful and productive negotiations towards service distribution agreements. Finally, we also are seeing engagement on the part of DoD towards the technologies and capabilities of our Ka-band satellite, our partner satellites and our fixed and mobile Ka-band terminals to help address the growing satellite bandwidth demands they have without the TSAT program. That covers all the prepared points. At this point, we'd like to open it up for questions.

(Operator Instructions) We'll first go to Chris Donaghey with SunTrust Robinson.

Good evening, Mark. I wonder if you could talk a little bit about the military opportunities for the ViaSat-1 technology. We know that there was a source of thought notice released for wideband gap filler satellites. Is that the type of application that you would be looking at for ViaSat-1 in the military market or are you thinking it is going to be more of a component level insertion into things like AEHF. Can you just walk us through what you're thinking on the military side?

In the absence of TSAT, sort of the conventional response has been to divide things up into two sides, one is sort of the strategic and highly protective mission and that would be the AEHF portion and the other would be the segment that is more comparable to use of commercial satellites and that would be the WGS component. And our main methods there is that it's quite comparable to the commercial side, which is that one of the things you would like to look at is at the end the satellite's there to deliver bandwidth and you can measure that in throughput. And so if you look at a ViaSat-1 type satellite, it has about a 100 gigabits plus of throughput and compare that with a WGS satellite which has about 2 gigabits of throughput, that's really the point we're trying to make.

We look at the use of -- I want to separate two different things. One is there is an opportunity for us to provide capacity to DoD on our satellite and in working with our partners on their satellites, and we see that as an augmentation to -- it would be analogous to any other commercial use of satellite because it would be delivering a very advanced capability, very, very high-performance and cost-effective. The other one is to talk to DoD about what it would mean to have that type of capability in their own fleet and so that's kind of a new discussion, and that's also a really critical one for us.

Okay. Great. Thanks. And obviously keeping the Arianespace launch vehicle contract, you talked about the Australian opportunity, we've talked a little bit about the military side. Can you assign a probability on how likely is it that by the time ViaSat-1 launches you're already building ViaSat-2 or beyond?

Yes, so that the life of that launch contract extends well beyond the launch of ViaSat-1. We think that it is quite likely that either we or one of our partners would have a good application for that launch.

Okay. Great. And then just one last question on the DoD budget. Any particular insights to gain out of the significant increase in the FBCB2 budget? Thanks.

No real comment on that. Our exposure to the program is really limited to the Blue Force tracking component that we provide.

The only thing I would add is it is just another affirmation that the next generation of Blue Force tracking is going forward.

Okay. Great. Thanks.

Thank you.

Moving on to Matt Robison with Wedbush Morgan Securities.

Thanks for taking my question. You mentioned a couple things on -- related to WildBlue. One was inventory and the other is -- was capacity. Is the inventory level reflective of the need for more capacity or is it more a reflection of demand? And then I have a follow-up.

What I would say is I think they entered the year with more inventory than they felt they wanted to carry, and so basically they worked down inventory by buying less than they deployed in new subscriber additions. And I think it is conceivable that they might try to work it down a little more. I would describe it only as prudent supply chain management on their part. It is conceivable they can work it down a little more, but not too much because if you look at the inventory they're carrying, it's probably not even 60ish days worth of supply. It might go down a little bit more than that, but not a whole lot. I think that was one of the factors that led to a reduction in WildBlue terminal sales for us on a year-over-year basis last year.

Yes, it was kind of -- I was wondering if maybe their inventory and their planning might have reflected the relationship of the demand versus capacity or their ability to supply in areas where there was demand.

Well, I think WildBlue keeps close tabs on the capacity levels of each beam and where their beams are. They are making good attempts to try to stimulate demand in their lower filled beams. But also the fact that they have 4ish-hundred thousand subscribers and churn is relatively predictable, that is a big stabilizing factor in their total gross adds on a monthly basis, that accounts for more than half of their gross adds.

So would -- a follow-up to the prior questions, when you look at ViaSat-1 for DoD and international, are you thinking -- it sounds like you're thinking of a number of different scenarios, but some which might involve selling capacity to DoD or in others which might be ground stations for their own assets which might look a lot like ViaSat-1, and is that the way we should be thinking about it and maybe replicated internationally? Because if you're selling capacity in ViaSat-1, implicitly that's just for domestic requirements I would think.

One of the ways to describe it is you look at what is going on with mobile broadband especially. That is a good example because there you have got airplanes, helicopters, ground vehicles that can operate in different parts of the world. The thing about the types of satellites -- the satellite that we have and Eutelsat's is another good example and there will be others that will be launched in 2011 and 2012 in interesting parts of the world. If you can use those satellites, you can achieve much higher speeds onto those platforms or off of those platforms, and so the idea would be to equip them, to take our terminals and upgrade them so they can work on our satellite and Eutelsat's satellite especially. In the US that might be for homeland security, training missions, developmental testing and things like that and they would probably get more use when deployed in parts of the world where they need those capabilities.

When you look at the backlog generation you experienced in fiscal 2009 and your proposals and your pipeline of opportunity this year, should we be thinking of similar lumpiness in timing or how should we be thinking about how you are going to put orders on this year?

Yes, lumpiness is sort of a fact of life for us because we can -- we get some large orders and those can especially be associated with annual events like MIDS production lots, MIDS JTRS (inaudible) lots, certain buyers for KG-250s, those are examples on the government side. And then another thing that represents lumpiness on the commercial side are ground segment orders associated with some of these Ka-band satellites, like one of the major ones still to go is the Canadian capacity on ViaSat-1. So that it is sort of lumpy and it is a little bit hard to predict the timing, actually.

Granted. But -- so we shall, given that you're -- it is a little bit harder to predict then we should be thinking of it more of second, third, fourth quarter kind of timing?

Yes, some of the stuff, it is going to be on the boundaries. But I think by second and third quarters we would cover most of the things I've described.

Okay. Thanks a lot.

Thank you.

Next we'll move on to Rich Valera with Needham & Company.

Thanks. Good afternoon, gentlemen. Just following up on that last question, for the overall fiscal 2010 year would you still expect a positive book-to-bill or can you call that at this point?

We expect it to be positive. I think that -- yes, I would say expect to be positive. Maybe not quite to the extent -- we had 16% orders over revenue this year, maybe a little bit less than that. But that's -- because orders are lumpy there is actually more up-side in the orders than there are probably revenue growth this year.

Sure, and if I could just ask a few specific questions on the funding situation. Ron, I think you mentioned your cash flow from ops, the estimates were a little bit better than they were before. I think you had been looking for around $50 million a year. Can you say what are you looking for now? I think you did $60 million this year, what are we looking for going forward?

So this year, cash from operations was a little like $62 million, we look for slightly better next fiscal year and as we continue to grow and manage our -- both our payable side and our receivable side to look at the working capital adjustments, a lot of our cash flow has been coming from operations and earnings. So as we grow earnings we expect to grow cash flow.

That's helpful. You said you're looking to expand your credit line pretty -- it sounds like pretty significantly. Can you give us an idea of what your target is for expansion of the line? And if you get that, would you consider that potentially -- would you be potentially fully funded at that point?

Well, so, regarding our existing line, we are looking to expand it. There are -- if you look at cash flow generation over the next two fiscal years as we round out what we're doing for ViaSat-1, we're pretty close with our existing facility. We're trying to expand it to a reasonable amount that we believe would provide us good flexibility to fully fund the project should we need to out of cash and debt capacity. But as we talked about, we're also looking at different, other avenues relative to distribution agreements or partner arrangements depending on how they're structured as well as there's other avenues to go out and get financing. But in terms of -- we don't -- we have some targets in mind. I'd rather not comment specifically on what those are. But suffice it to say, the targets we're looking at would fully fund the rest of the program combined with our cash from operations.

I think one thing I would add to that, Rich, is that -- and we feel that we're really close right now. So issue is cash flow is one of those things that when you miss a few payments or whatever, it swings a little bit on a quarter or month by month basis, so we feel like we need a little bit more room.

Right, right. On MID J, Mark, I think you mentioned you are expecting your first LRIP award this year. Do you have any sense of the magnitude of that initial LRIP award?

Tens of millions, in that range.

Yes, yes.

And then moving on into subsequent years, in terms of the magnitude you envision for MIDS J, do you see it being (technical difficulty) to the magnitude of the original MIDS program or do you have a sense of that at this point?

Actually one of the ways to look at it, and it will be pretty close this year, I think, if you were to add up, let's say our MIDS LVT orders plus the LRIP orders, it would look similar to last year's MIDS LVT orders say as an example, and then we actually think it will grow from there probably (multiple speakers) so the idea would be that the sum of the two will be accretive, it will reflect growth compared to what MIDS LVT was. We think that's been a pretty reasonable outlook just for the MIDS J program as it is defined now and there is definitely upside from there.

Right. Okay. That's helpful. Thank you very much.

Next we'll hear from Steve Ferranti with Stephens Inc.

Thank you, good afternoon. Mark, just wanted to see if we might be able to get a bit more granular in terms of our how you're thinking about fiscal year 2010 guidance as you sort of balance the strong backlog you have versus some of the uncertainties in the market today and to what extent there might be sort of some discount factors in terms of how you're steering us at this point?

Well, we're actually using a process that's pretty similar to what we always use. We take a ground-up sort of a grass-roots up forecast of all of our programs, and we try to weight things for likelihood of occurring and for the time frame in which they would occur, and we try to weight that, though taking into account what the economic climate is. And that can be more of a factor on commercial, generally it has been less on government, although government has its own factors that drive delays. And what I'd say is we've been doing that for years and years and it worked reasonably well in this past year. The big question is are you missing something? Has something changed? For us often the failure mode is less that we lose things and a little more often that things are delayed. We tried to account for that here, but I can tell you that the approach that we've taken, we tried to be mindful of the environment that we're in, and it's -- and we also try to give ourselves some maneuvering room because not everything happens on schedule, but that's how we build our forecasts. Does that help answer your question?

Yes, just to some extent you've built sort of the broader environment into your weightings in terms of each opportunity. So that does answer the question.

Can you talk a little bit about some of the maybe signs of progress in the negotiation process both on the distribution partner front as well as potential financial partners and maybe handicap for us if one may be further down the road than the other.

On the distribution partner front, one of the things we started with at the SATELLITE 2009 conference we had this demonstration I described set up and that gave us a good opportunity to show it to people in the industry and then we reproduced it in different -- different places, especially here at our office. And what we've been focusing on are people who understand the satellite broadband market in the US or who can come into the US from neighboring places. And it's actually been pretty straightforward and partly driven by the lack of, there is already a shortage of capacity. If someone were to start a new satellite, it's going to be a year and a half or more behind ours. And so people that are already in this market see the benefits of having a satellite up and they were able to visualize what the service would look like and they compare it to the service that they have now and it's been exciting. So what we've been doing is trying to tailor sort of a wholesale approach to each of these perspective partners and that can take a variety of means. I really wouldn't -- I think it would be way premature to try to identify specific partners, but I think there's real interest out there, and the nature of the negotiations seems to be sincere. And I can't really add too much to that. Does that answer your question? Or do you have (multiple speakers)

Yes, and then anything in terms of which we might see first whether it be on the financial side or on the distribution side?

Here is what I would say as a fairly likely scenario is the most straightforward thing for us to do is to add this incremental debt capacity. And, of course, any prospective retail partner wants to have some confidence that, especially if they're going to make some investment in preparing for the service launch that we will be there. So those two things play off each other. What we've been showing is here is where we are, here is how far we've gone, here's our finances and here's how we're going to finance the rest. And I would say that I think that it is just -- that's pretty straightforward and the one event, the events you might look for would just be these incremental additions which may occur in one step or more than one step on our existing debt facility. That is probably the first thing you will observe no matter what.

After that, some of the deals that we're making may in themselves subsequently bolster or change the financing profile that we use. Okay? And that depends on the nature of the bandwidth agreements.

But one of the things I tell you as an example, it doesn't take a whole lot of imagination here, but if you look at what is going on in the broadband stimulus environment, it is really intended to be -- to support capital purchases, not to cover ongoing operating expenses. So one of the things that we've been discussing with people are capital leases or capital purchases of bandwidth that could ultimately turn out to be part of the broadband stimulus program. And then so just the nature of those would mean that they'd have financing benefits implications for us at the same time as they would establish distribution relationships and that is another fairly straightforward extension of where we are.

Beyond that, I would say once you get into those discussions and people start looking at sort of what their long-term plans are, what that capacity might mean to them, that has led to, I would say, broader strategic discussions which also seem reasonable and sincere but are probably either could end up taking longer or not. I mean, they could end up being sort of natural consequences of the types of capacity arrangements we're talking about.

I understand. That's helpful. Last one from me, starting to hear more about the MADL opportunity. Can you frame up for us. Is that a competitive -- does that have a competitive dynamic towards your position on the MIDS program or is that a complementary or incremental opportunity on the MIDS program?

For us it is a complementary or incremental opportunity. One of the things that's been in play, we've talked about on MIDS JTRS is the ability to add more advanced airborne data link to that and MADL is one example of a more advanced airborne data link. Other ones that have been thrown around would be TTNT or the WNW, wideband networking waveform. Those are examples of things. I think MADL has become one that seems to be developing some consensus around it, so we could see that as an example as a substantial incremental addition to MIDS J maybe instead of TTNT.

I see. Very helpful. Thanks, guys, good luck going forward.

Thank you.

We'll now take a question from Michael French with Morgan Joseph.

Good afternoon, gentlemen.

Hi.

I have a question about the 10% savings on ViaSat-1. Obviously you have got the $20 million on the change of the launch vehicle, and you mentioned savings on the ground segment. Can you provide us some details of how you were able to do that and what the magnitude of that is?

Yes, basically -- the savings come from launch insurance, and think of insurance as -- launch savings are sort of net of carrying this (inaudible), insurance savings are really on the gross amount of the satellite plus launch so those are a little bit, so you add those on. On the ground segment I would say there are several things involved. One is a little bit of conservatism in our initial estimates. Number two is in being able to work out a -- an agreement Eutelsat for their gateway as that created some economies of sale and we shared some of those savings with Eutelsat and some of them we accrued ourselves as well. The other thing is, as I mentioned, we got really good reception from the fiber backbone providers who see this as a very exciting growth opportunity for them. And so that is reflected in things like some of the real estate expenses or shared facility expenses that would be associated with the ground segment. I think it's those things in aggregate that reflect -- that create those savings.

Okay. Thanks, that is helpful. On the hypothetical ViaSat-2, when would you expect to make a decision on that and do you have any orbital slots anywhere or plans to reserve orbital slots?

We still have our 77 slot and we're pursuing that. What I would say though the timing of ViaSat-2 would not be until we demonstrated that ViaSat-1 is going to be a financial success. That is what we said all along. And we feel like we're getting a lot closer to that, and so that would create the opportunity for ViaSat-2. We think -- we don't intend to start that until investors are -- understand exactly what the benefits would be in the first quarter.

Okay. Yes, that makes sense. A quick one, housekeeping, D & A for the quarter?

Yes. Are you asking what it is?

Yes, sir.

I'm sorry. Well, I guess if you look at the cash flow slide, non-cash adjustments $6.2 million, that includes depreciation and amortization and an element in there for non-cash stock-based compensation expense.

Okay. Thanks.

All right.

Jim McIlree with Collins Stewart, please go ahead.

Okay. Thank you. Could you repeat again what you were saying about the quarterly progression? Were you just backing up from that entirely or were you kind of suggesting how the quarters might play out for the year?

We haven't given quarterly guidance. We're sort of reluctant to do it. Typically we give annual guidance. The only thing I would say as a base if I were going to start with it, it would be a lot better to look at what we did last on a year by year basis, maybe go back to this past year, and then say, hey, look, we're going to get 10% growth, what would not that look like on a quarter by quarter basis. That would be at least a start to it and a shape to it.

Okay. And did you say the government business would be about 10% for the year, so you would be looking for generally speaking the commercial and the government business to grow at about the same rate? Did I hear that correctly?

Jim, this is Rick. What Mark said is that we expect overall growth to be at 10%. We didn't refer to the government growth at all.

Can you take a stab at which group would grow faster this year?

Actually it does turn out to be pretty close to the same.

Okay.

We didn't say that, but it does turn out -- looks like it is pretty close to the same for different reasons.

The Eutelsat 68 million combined orders, do you start delivering on those this fiscal year, fiscal 2010?

Yes, we actually started some of that work last year.

And I think this is my last one, I think the three areas you mentioned on your government systems slide were data links, information assurance and next gen sat com. Can you either give us a broad brush how big those are either in dollars or relative to each other or just so we can get kind of a feel of how big they are relative to everything else?

Among our government business they're fairly similarly sized and the government one grew a lot this year to achieve that, and the IA, the information assurance area is kind of growing up to be the same or pretty close to the same or a little more than the data links area. In this next year, we expect to see growth in information assurance and satellite and, as I mentioned, probably not growth on a revenue basis and data links.

Right. Okay. Great. I think that's it. Thanks a lot.

Thank you, Jim.

Moving on to Mike Crawford with B. Riley & Company.

Thank you, just one more question on the expanding credit facility. Just because you're going to have, you expect to have a ViaSat-2 at some point in the future, wouldn't it make sense to expand the facility anyway even if it turns out that distribution agreements or bandwidth agreements you get make it that you don't need that capital, doesn't it make sense to get this expanded facility in place now anyway?

Yes, flexibility is good to have.

Right. Plus, with over $100 million EBITDA you clearly have -- how big is the facility now?

85.

What is your maximum leverage you would be comfortable with, three times?

We've talked about it in the past 2-1/2 range is where we would be willing to go up to. Traditionally, we have been fairly conservative and not really levered and what not, but we are going to have large revenue producing asset in ViaSat-1 and looking at the right capital structure for that asset and the business as a whole is appropriate.

By my model I don't think you need more than $70 million in debt if everything comes in kind of as expected in net debt. But, so you talked a lot about how to get this thing off the ground, but you haven't talked a lot, at least today, about what the economics of it look like once you start to fill it up with subscribers. So do you have -- have any assumptions changed regarding the bandwidth you have to allocate per subscriber over the course of the project? Do you think this is going to be -- have a 15-year or so commercial life? Can you walk through average number of subscribers, average cash operating cost once you get things subscribed, some of those metrics for us?

Probably couldn't go through that now without some support. We did show a slide a little over a year ago that had an earnings -- sort of an earnings outlook, multi-year earnings outlook due to ViaSat-1 and the equipment business that went with that and the Eutelsat case and satellite, and that we took a slice in 2014 time frame, fiscal 2014 which was on the order of incremental earnings of dollars per share $2 to $4 range in this slide ballpark and that was a function of what percentage of the equity we owned in the satellite and we've gone through and revisited that in that timeframe and it still looks like a good estimate. That's why we're doing this.

The underlying estimates we have talked in the past about models, talked about how much bandwidth per subscriber, how we escalate that, what the peak subscriber load would be, what the operating cost would be, and what the margins would be and really don't see any material changes to that at this point at all. The types of discussion, we talk about this band -- this demonstration which I think was important getting these dialogs going with distributors was based on those metrics and just ballpark what we talked about is providing three to four times the bandwidth of, say, a WildBlue service which would be five to six times the bandwidth of a used net service on a per subscriber basis and then escalating that over time.

And depending on where you look in time over the next few years really represents about 1-1/2ish to 2 million. If we filled it up really fast, maybe maybe 2 million subscribers, probably more likely estimate is about 1.5 million subscribers on the satellite. One of the ways to sort of gauge what the difference is we're talking about a satellite with, let's say, 100 gigabits a second and as an example, competing service with a satellite with less than 10 gigabits a second also talking about a million subscribers on the satellite, so that will give you idea of the magnitude of difference in bandwidth provisioning that we're talking about.

I think, Michael, probably in like it's -- there is no reason for us to change what we think we could get for a wholesale capacity on a per sub basis given the provisioning that Mark has laid out. We didn't learn anything that would cause us to change our outlook at this point. Does that answer your question?

That does. That is very helpful. I don't know if you could -- I mean you gave some kind of after-tax, after-depreciation kind of dollars per share numbers but maybe if you could just talk a little bit about cash operating costs once you have the service running with back hall capacity, call center support, gateway maintenance, maintenance CapEx ballpark if this thing was running at a peak subscriber level?

Well, we've in those, in those calculations, if this thing gets full, that that range is, from a cash cost standpoint that range is anywhere from kind of $30 million to $60 million, and there's some factors--

A year.

A year. And there is some factors in there. What are the back hall costs. You can't get 15-year contracts for back hall for the fiber capacity, so we projected some of those things out and staffing levels and we still think it is in that range. We have some optimistic models and some more pessimistic models, but anywhere in that range. You throw in depreciation on top of that, and you think about, like Mark said, 1-1/2 million subscribers at the kind of rates we are talking about, it is very profitable in those mid-years.

Going rates for wholesale service, right now it's $20ish dollars a month, that is kind of ballpark number per subscriber. And that--

If off million, that is $30ish million a month. These are round numbers but gives you the idea of revenue potential compared to the cash operating costs. The -- and the appeal to distributors is for roughly a comparable wholesale cost they would be getting multiples of the bandwidth, three to four times and higher subscriber speeds. So that is the pit in a nutshell.

That's assuming we just use the satellite for one type of-- For one type of service. And don't have other service -- other revenues components factored in.

Two final questions.

Is that consistent, Mike, with what you've been thinking about?

Yes, yes, it is, thank you. Just two questions. One , if you had another component , say it was a DoD taking a portion of capacity, do you think that would come in at a higher or lower rate or is it just way

There are other applications that we think would have higher marginal yields and those include mobile broadband, defense and enterprise applications.

Thank you. And then you said the comment about the going rate for wholesale service, how has that changed over time, say over the past -- well, as far back as five or ten years if you could -- I don't know if you can.

I would say there really has only been a reasonable market for wholesale satellite services over about the past four years and that I would say the pricing has been quite steady over that period of time. If you look at retail pricing, retail pricing in satellite broadband has also sort of held steady, it has actually gone up a little bit with areas of high demand which is where our satellite is aimed. It has gone down a little bit in areas with low demand, which we don't actually cover. Retail pricing, just to put things in perspective, retail pricing for satellite broadband services in these high demand areas ranges from about $50 to $85 to $90 depending on the level of service.

Great. Thank you.

Thank you, Mike. We can take one more. Is there someone else on?

Final question Chris Quilty with Raymond James.

Just made it under the wire. Quick question, Mark, you said you're getting pretty close to some of these distribution agreements or strategic arrangements, are these the type of things that your partners would allow to be announced?

I think so. I think they would consider it to be good for them as well. Some of them are big, some of them are small. I'd say the thing that's -- the thing that is interesting and that's good is that we have entered into the negotiations because we're still pretty close to two years away. So the thing -- just to be -- to be as clear as clear as I can, we expect to close some of these financing debt expansion transactions relatively soon. It's hard to tell on the timing of the -- of these actual distribution agreements. What is noteworthy I think is the number of negotiations we've entered and sort of the depth of the negotiations. But I wouldn't imply that they're going to be imminent because some of them might be influenced by the potential for broadband stimulus and that might influence the timing of how these transactions occur.

Okay. And, Ron, as an equity guy here, help me understand if you were to do a straight debt financing credit facility, whatever, what would we be looking at the in the current market in terms of if you give me a band what you might be paying in interest?

Obviously they're typically tiered to leverage. And I think in today's realm, like an L plus 350.

Okay. And separate question, just in modelling the commercial business, the operating margins, it sounds like you're going to have much bigger slugs of Eutel fat infrastructure and I'm not quite sure what the margin implications are of selling infrastructure versus product, is there something we should do in terms of modeling the margins there this year?

Our development revenue tends to be at lower margins than our standard product margins, so with regards to some of our next-generation not only just broadband technologies but some of our mobile and whatnot, they do tend to be at much lower margins than what our average is as a whole.

Okay. So it would be probably be fair to model the margins in the commercial business down this year.

I think I would say I think you got to look at the mix, because within our consumer -- within our commercial networks area we have consumer broadband, mobile broadband, and within consumer you have your existing surf beam platform and your next-generation platform. So depending on how things go relative to subscriber growth or uptake, as Mark addressed relative to the inventory side of things, relative to WildBlue or even Eutelsat who has also been buying a fair amount of our surf beam product, those tend to carry better margins than what we're doing for our next generation system just because of where we are. So there can be varying margins and a varying mix within that. I wouldn't say just one thing is going to drive it and say, okay, then they need to be lower. I would say it depends on the mix of the different elements and what the overall operating earnings would be.

Okay. And question on the ViaSat-1. I think this is the first time you've given us a slide that actually showed the range of the project 370 to 395, and you've talked about having taken costs out of it, but your original slide from back a year ago January didn't have original project costs, so can you give us an idea of at least on your piece of paper what the savings have been from the original amount to today?

Okay. So when we're looking at what I showed today was really through inservice. There are some additional gateway costs that go beyond inservice. So it is not a picture of what the entire project is relative to what we're looking at. That said, our 10% savings, Mark indicated, you talked about a $20 million net savings on the launch vehicle, and that is a net savings plus an additional insurance savings just relative to the market as well as some of our ground segment costs. So it's tens of millions above the 20 that we talked about.

I think what we originally said is somewhere $395 million, $400 million at launch. Close to $500 million when it was entirely built out. I think that is what we originally said and I think Mark said we're about 10% off that now.

Okay. Final question here. You mentioned when you were talking about the defense in fast-growing areas, some of the government park-like opportunities, is that primarily the aviation stuff you've always done or do you have some other things kicking around there?

It is largely aviation but there is ground mobile there as well.

Okay. Great. Thank you, very much, gentlemen.

So I think that covers not only our prepared remarks but a good set of questions as well. And thanks, very much, for all of you for listening and talk to you again next quarter.

Once again, ladies and gentlemen, we do conclude today's conference call. Thank you for your participation.