Viasat Inc (VSAT) 2012 Q1 法說會逐字稿

Welcome to Viasat's fiscal year 2012 first quarter earnings conference call. Your host for today's call is Mark Dankberg, Chairman and CEO. You may proceed Mr. Dankberg.

Thanks. Good morning everybody. 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, our General Counsel. Before we start, Keven will give 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 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 SEC or from the website. Back to you, Mark.

Thanks, Keven. So we will be referring to slides that are available over the web, and we will start with some highlights and the capital financial summary for the first quarter of our fiscal year '12 and then after that Ron will discuss the financial results in more detail. And then I will give you an update on our business segments, and finally I will update our outlook for the fiscal year and summarize things. And then we will take questions. As you all know by now, the Viasat 1 launch was delayed from July to September 29, as a result of a silver array deployment issue on the Telstar 14R satellite. Following that Telstar incident, Space Systems/Loral, who is building our satellite, convened a Failure Review Board, and that concluded the problem was a workmanship issue on that particular satellite. We and Loral conducted additional detailed inspections and tests on our Viasat 1 satellite just to preclude a similar issue on that. But all the work that we did meant that ILS had to reschedule our launch.

At this point, the satellite construction and on-site testing at Loral is complete, and is being readied for shipment to the launch site. After reviewing the Failure Review Board result, and the additional inspections and tests on the Viasat 1 satellite, our insurers concluded that there was no impact to our coverage or our premiums. So the path is pretty much clear to our launch. There are 3 ILS proton launches before ours, and one of those is another Space Systems/Loral satellite. While there are some puts and takes on financial impacts to the launch delay, the net effect is going to be some earnings impact. Meanwhile we've made really good progress on defining our Viasat 1 consumer service plans and have had good reactions from our wholesale and retail distributors. We are also anticipating some potential revenue growth in Commercial Networks this year, and we're off to a good start there. Eutelsat's KA-SAT service launch has gone well. And they're meeting their objectives for service quality and subscriber growth, and that's what will drive our terminal product revenue. We earned significant new contracts on Iridium NEXT's constellation payload for the KA-band theater link modules and we've also got the balance of the MEXSAT ground based beam forming order from Boeing. Our mobile broadband business is growing meaningfully for both maritime and aviation, and we see additional opportunities in the near term for both domestic and international networks businesses.

Government business is also largely consistent with our expectations. Obviously, the defense budget is a concern, and we're seeing headwinds in our government products businesses, as are other defense contractors. But the large production orders on Blue Force tracking that we got last year as well a significant growth opportunities in defense mobile broadband products and services have a good shot at overcoming those headwinds for this year. This chart illustrates some key financial metrics for the first quarter compared to the same period last year. The data was also in the release earlier this morning. Overall, our results were pretty much the way that we had expected.

We indicated in our last call our first-quarter would be sequentially down from the fourth quarter, and that was the result of the delays we have been experiencing in our government orders in prior periods, as well as a fixed infrastructure cost we have committed to for the original launch schedule. New orders for this quarter were very good at $254 million. And, coupled with a very good fourth-quarter new order flow, builds confidence in the outlook for the year for the products businesses. Revenue is up slightly year-over-year, but sequentially down from the fourth quarter as we have indicated. Adjusted EBITDA was impacted by the revenue level, and by the satellite delay, which we will talk about more a little bit later. With that, Ron will go into our financials in detail.

Thanks, Mark. We'll begin with a segment discussion, followed by further P&L discussions, the balance sheet, and then cash flows. In our government segment, revenues were slightly down year-over-year, reflecting mostly order timing. Of note, though, is our evolving mix of service revenues from both extended maintenance contracts on fielded products, and our expanding private satellite networks for mobile ISR applications, mostly with the government. Our operating margins reflect a lower revenue level and increased selling costs from the numerous mobile and ISR opportunities we are pursuing.

In the commercial segment we are off to a good start to the year. In the first quarter of this year we received two large awards. The remaining portion of the MEXSAT ground based beam forming system from Boeing, and the KA-band feeder link contract for the Iridium NEXT constellation from TELUS. Between these two awards, the terminal shipments supporting the 2-way service in Europe and our significant antenna backlog, we feel good about our growth in this segment. Our operating loss and adjusted EBITDA reflect continued investments in advanced antenna technologies, and the production costs associated with the Surfbeam 2 startup. In satellite services, revenues are down a little year-over-year, principally from lower sales of our managed broadband service and from lower wholesale subscribers, an impact of the launch delay, which Mark will talk about in more detail later.

Our earnings results were consistent with our communications in our last call. In the first half of the year, we are incurring about $15 million of costs related to fiber back haul, gateway site costs, and our data center that were tied to the original launch date. Given the current launch schedule, we'll continue to incur these costs without the associated revenue benefits. Also in the first quarter of this fiscal year, we began our rural utility service broadband stimulus program, which also added extras selling costs in the quarter. Over the next few quarters, we will steadily begin to see the financial benefits of this broadband stimulus program. As we turn to the rest of the P&L, for the first quarter the other notable items include our research and development expenses are down because we have more funded development programs when compared to the same period last year.

The difference in other income is due to the capitalized interest effects. We expect to continue to experience low interest expense until the satellite is placed in service late in our fiscal third quarter this year. There's a significant difference in income taxes year over year. In the first quarter last fiscal year, the federal R&D tax credit was not in effect. As a result, our tax rate was above 30% This year, it is in effect for the first 3 quarters, and this helps lower our rate. So this benefit, combined with our expected lower pre-tax income, our current year effective tax rate is expected to be near 0%. The income tax benefit recorded in the quarter of this fiscal year reflects this lower rate and some discreet benefit items in the quarter.

As we turn to the balance sheet, overall, our balance sheet metrics are strong with good liquidity and low leverage. We made great progress this quarter in receivables, and day sales outstanding are near record lows. We took a step back, though on inventory this quarter with some specific increases associated with pending awards or events. We received a number of these awards already, so the inventory amount should work down over the next quarter or so. We are also beginning to increase our SurfBeam 2 inventory to support the KA-SAT network, and 2-way service in Europe. Also, as we deploy ViaSat-1 in the US in our fiscal third quarter, we will also see an increase there as well.

We expect working capital management and operating cash flow to continue to provide a stable source of funding for our satellite projects and other capital outlays. At quarter end, we had almost $240 million in availability on our line of credit, and we believe our line provides added flexibility to achieve our operating objectives. Turning to cash flows, cash flows from operations in the first quarter were low, largely due to the inventory build up consuming cash despite good cash flow generation from our receivable reductions. As we work down the inventory levels over the next couple quarters, we expect the cash generated to increased meaningfully and get back on track. We used cash in investing activities this quarter, however, they were less than expected largely due to the launch timing slipping to September. As a result, satellite related payments were light.

The Gateway construction continues to be on track as well, as capital associated with the back office expansion at WildBlue to support the service launch. We did borrow $15 million in the quarter, and expect to borrow another $45 million or so in our fiscal second quarter, to support the remaining ViaSat-1 payments, primarily launch insurance and the launch vehicle. Our cash flow projections for the year at this point appear consistent with our expectations, however the timing has moved a little between the quarters. I'll turn it back to Mark now to talk about our business segments.

Thanks, Ron. At this point we will dig a little more into each of the business segments, starting with the Satellite Services. We're making steady, deliberate progress in introducing our new services on the ViaSat-1 satellite. Eutelsat started commercial services on KA-SAT this past quarter. That's a big milestone and it demonstrates th readiness of our new SurfBeam 2 second generation ground networking system and its ability to leverage the economics of these new generation high-capacity satellites.

We also got off to a good start for the rural utility services stimulus program, and our (inaudible) streams on existing satellites. That service uses our current SurfBeam 1 network, but it also does exercise some of the new data center and back-office capabilities we've been building for ViaSat-1. We think that the consumer response to the new plans is favorable, and it's indicative of the opportunity to increase subscriber ads with service plans that deliver more value. The next big step is the satellite launch at the end of September. And then at about the same time, we will also begin operating new higher speed services on the Western beams of our two existing satellites using that new SurfBeam 2 ground network. That network will deliver higher peak speeds, better performance, and more efficient use of satellite capacity, even in the areas not covered by ViaSat-1.

We've been doing a lot of work to refine our go to market plans with our distribution partners, and we are now converging at a faster pace. It looks like we'll do better than we initially planned, by delivering even greater increases in speed at retail price points in the ranges that we currently offer. So we should do better than the 3X to 4X speed increases we've been thinking of before and we can do that without reducing the number of subscribers we can support. The new Western plants will be a little bit of a junior version of that, and will help us fine tune for the main event at the start of December. In the meantime, we have begun seeing some of the effects of the satellite delays in our subscriber numbers. Distributors have been orienting their thinking around starting services this current quarter. We are seeing some fall outs in wholesale gross adds and some upticks in churn. As a result, net subscribers continue to decline somewhat.

But better than planned response to the rural utility service stimulus helps mitigate that. And the new Western Beam plans this fall will also help. And we are considering some other tools we can use as well. But the delay in the ViaSat-1 launch will add some subscriber economic impacts to the other fixed costs we have previously identified. Meanwhile, the work we have been doing a mobile broadband for the last several years is paying off. The largest and fastest-growing source of mobile broadband service revenue is government intel surveillance and reconnaissance. Most of that shows up as services revenue in our government segment. But we are also receiving a growing amount of revenue from government aircraft that roam onto and use our public Yonder networks that also serve general aviation and maritime customers.

We have continued to see steady growth in business jet and maritime. Bombardier recently also began offering our Yonder service on their global 5000 and global 6000 series jets. KVH has continued to grow their mini VSAT network at a good rate, also based on our ArcLight equipment and sharing our Yonder network. KVH is at over 1500 ships and is seeing rapid growth with the introduction of their much smaller and less expensive TracPhone V3 product this past quarter. So we anticipate both increasing ArcLight modem product sales and increasing contribution to our services business from maritime. On the commercial networks, we've been anticipating strong growth in commercial networks revenues, and we are off to a really good start with our first-quarter orders for this fiscal year, coming pretty close to all fiscal year '11 combined. Around two-thirds of that order value came from the combination of the Iridium Next KA-band satellite payload project and the balance of the MexSat global ground-based beam forming project. Those two gave a big boost to our commercial networks backlog. But as you can see from the revenue bar chart that we are also anticipating good year-over-year growth in broadband terminals besides those projects.

The drivers there are the ones we have been expecting. Eutelsat's 2-way is now in service and that rekindles demand for consumer broadband terminals, and we're seeing good growth in general aviation and maritime mobile broadband products. We believe we are gaining traction with the extent of global coverage, the depth of that coverage, and very attractive service speeds and pricing compared to more conventional L-Band mobile networks. We will see more of the revenue from commercial aviation, such as Jet Blue, next fiscal year, with just start up effects coming in this current fiscal year '12. But we believe that the increases in speed, performance, and value available with regional KA-band networks will add to our mobile broadband momentum. Finally, you can also see from the bar chart that we anticipate continued growth in our Antenna Systems business. Antenna Systems have been steadily profitable, and is increasingly providing enabling technology for both fixed and mobile broadband applications.

On the other hand, the delay in the ViaSat-1 launch will shift some wholesale computer terminal sales out of this current fiscal year, and we do continue to invest in this area in terms of technology development and production startup costs. But those investments also yield benefits in some of our government businesses as well as our services segment. The main story in our government segment continues to be the shift in the business mix. As with other defense contractors, we do see the effects of defense budget constraints, and that makes it more difficult to forecast product orders or contract awards in general. We see those effects in our network encryption products, our tactical satellite products, and the MIDS LVT and MIDS JTRS areas. As an example, the MIDS LVT production lot 12 contract was awarded this year, early July, just after the first quarter ended, and left us with somewhat lower revenues and earnings for Q1 than we had anticipated. Typically that order would have occurred in the first quarter.

In the MIDS case our lot 12 award, which was awarded, as I mentioned, early July, did slightly exceed our expectations, and the revenue and earnings associated with that will just come later this fiscal year. But we are also fortunate to have some tailwind benefit this fiscal year from the Blue Force Tracking 2 production backlog we built last fiscal year and from very good growth in defense airborne broadband for ISR and global command and control. We believe the BFT program is doing well. The system performed well in the recent six-week network integration evaluation exercise at White Sands, and our terminal production costs are consistent with our targets. The defense broadband area started off by leveraging our commercial business jet market for terminals and services. But the defense portion has grown fast and it has already surpassed the business jet installed base, which has been building over a longer period of time. The chart shows that crossover.

Be sure to note that the last column is just the fiscal year '12 to date, and we think the trend over the balance of the year will be good in both markets. The defense market for mobile broadband is now bigger for us in terms of platforms served, network services, and we're integrating a broader range of airborne antennas on an increasingly diverse fleet of aircraft. The balance could shift back to commercial next fiscal year when we introduce KA in-flight broadband for commercial aviation. Q1 government orders were a little bit light, but proposal activity was very strong. That's a very good sign in the contractor defense market, and we are still seeing new opportunities, too. We believe those opportunities will continue to reflect cost savings initiatives more than traditional program starts for DOD, a trend that can play to some of our competitive advantages.

For the fiscal year as a whole, we are still aiming at about 10% revenue growth in the government segment, and returning to historical margins. This slide on our outlook is the same as we showed last quarter. And that reflects the overall theme that, except for the ViaSat-1 launch delay and the direct and secondary effects of that shift, we believe our outlook for fiscal year '12 as a whole is largely the same as it was last quarter. There are always puts and takes associated with individual programs due to timing, specific wins and losses, and project performance, but on balance, our first quarter basically reinforced our views for the government and commercial products areas. For fiscal '13, models will need to be updated to reflect the effects of the ViaSat-1 launch delay, but we still believe the chart is directionally indicative of our outlook. Of course, we will know much more about fiscal '13 once we enter service with ViaSat-1 later in this calendar year.

So we can summarize things here. The ViaSat-1 satellite construction and on-site test space system trial is complete. The satellite will be shipped to the launch site in about three weeks and then it will be integrated with the rocket for September 29, launch. Meanwhile, we are checking off all the interim ground network, back-office, service plan, and distribution steps to pave the way for a smooth service launch in early December. It looks like we will be able to offer faster speeds than we were previously planning, without compromising subscriber numbers, and we're making good progress in the distribution agreements and preparation activities to introduce those new services. Response to our rural utility services stimulus plans have been encouraging and better than anticipated. But the delay in the satellite launch is leaving us dependent on our old service plans for longer than we and our channel partners had though, and that's causing some subscriber erosion through churn and lower wholesale gross adds.

But we are aiming to introduce new much higher speed service plans in the Western US, using the new ground network a couple months ahead of the ViaSat-1 commercial service, which should help. And it will further retire risks for the main event with ViaSat-1. Commercial networks had very strong orders in the first quarter, and that helps build confidence in our outlook for very good revenue growth and lower operating losses compared to fiscal '11. The key factors there are significant new project contracts, successful launch of commercial service on KA-SAT paving the way for customer growth customer premise equipment terminal sales, and good growth in maritime and aviation mobile broadband, as well as steady growth in the Antenna Systems business. And we've still got some significant international opportunities in KA-band networks that are still in play.

On the government first quarter also reflected our themes for the fiscal year. We know the defense budget is going to make forecasting timing and quantity of awards very tricky, but fortunately we've got good production backlog in Blue Force Tracking, and a fairly unique growth opportunity in the intel, surveillance, reconnaissance and global command and control, based on our airborne broadband products and services. We've been very busy with proposals for high-priority programs there, and anticipate continued strong new contract awards as a result. The defense business mix seems consistent with the return historical margins for the second quarter as a whole. That covers all the prepared remarks that we had, and at this point we would be happy to take questions.

(Operator Instructions)

Our first question comes from Matt Robison with Wunderlich. Matt, your line is open.

Sorry. Thanks for taking my question. First thing I am interested to know is on the gross margin, should we view the impact to be from commercial networks business, and is it more of a mix of the customer premise equipment, the Surfbeam stuff, or is it the new projects that tend to have a little bit -- and I've got a follow-up about the outlook for defense in the current quarter.

From a product standpoint or a segment standpoint? I will address both.

Go ahead.

We do have a higher mix of funded development programs, which traditionally carry lower gross margins than our normal production contracts. That said, when we are introducing a new product like Surfbeam 2 in lower volumes as we are shipping to Europe, there are some production startup costs that are greater than what you would normally occur in a larger -- when you are amortizing them across a larger shipment base. So there are some of those types of costs that we will incur last quarter and this quarter. But as we hit steady stride with good volume when we are shipping them both to the US and into Europe, those will be a much smaller percentage, and our margins will improve there.

So it sounds like the margins could improve a little bit for the September quarter?

Maybe not necessarily in September quarter, but probably more likely in Q3.

Okay. And then in the near-term outlook, there's been -- more on the commercial side, but there is been some indications that there was a little bit of a recovery in federal spending immediately after the April budget was approved. And then a fall off more recently, then actually some pent-up demand with a bit of a strong budget flush in the September period. I know you guys -- your project oriented business probably doesn't have the seasonality and volatility that some of the more commercial revenue streams have for other companies. But interested to know if think you are going to have a strong September quarter for defense spending, given the budget flush dynamics?

Yes, I think we saw some of the effects that you are describing, once they got over the continuing resolution, that freed up some stuff. We did see a flurry of orders that had been pent-up there -- that stuff worked through. For the September quarter, yes we actually are expecting very good government awards, and it's a combination of a normal affect of people trying to commit their funds before the end of the fiscal year -- we are seeing some of that. And also we've just had a bunch of proposal activity which will probably result in awards for a fair amount of that this quarter. Some of it is actually going to spill into next fiscal year. And actually things look pretty promising overall based on our proposal activity now for government awards.

So the government fiscal year?

Yes that's not --

So your December quarter than?

Yes.

Then as far as your -- I know you are probably not ready to give fiscal 2013 guidance, but can you talk a little bit about some of the dynamics you anticipate in terms of the challenges, in the March and the June quarters associated with the ViaSat-1, and how the delay is impacting that time frame?

The main thing we are referring to in fiscal 2013 is just to take the kind of subscriber ramps that we have been modeling and just ship them by the launch delay. That's really the only thing that we are seeing that's has changed over the last quarter.

And just having some fixed costs that aren't going to get covered until later in the year it sounds like.

It's really just taking a couple months off the end of fiscal 2013 -- move a couple months off the end of fiscal 2012 and into 2013, it's really just that affect.

Okay. Thanks.

Your next question comes from Ken Herbert with Wedbush.

Hi good morning. Can you hear me?

Yes.

Just wanted to follow-up on the defense outlook. It sounds like pretty good strength now with some of the bookings that have come through this quarter and with what you had in the fourth quarter. How would you characterize risk to the growth now, in light of the conversations of potential risk in additional continuing resolution into -- for fiscal 2012, depending on how things go here over the next month or two? And you're still pretty confident in your 10% growth it sounds like, but have the dynamics changed at all in your outlook for the business?

I would say there's a few different things going on. Number one is I think we along with everybody are trying to calibrate, maybe a new normal in the defense procurement process. And that's due to the budget constraints, continuing resolution effects., the combination of those things. So over the last couple of years what we've been trying to do is calibrate the forecasting process for that work pretty well and ratchet down our expectations and try to build conservatism in to that. We've tried to do that part.

Then we've got 2 other effects. One is, because we had really strong orders last fiscal year in Blue Force Tracking, so we built up a good backlog, that makes that portion of our government business pretty predictable this year, because we're really going to be working off backlog, So that's one element.

Then the other part is these high-priority programs for the airborne mobile. And there, what we have seen over the last year is different than what we have seen in the rest of our defense business, because these are high-priority programs. They actually save costs by diverting airborne communications away from more expensive older technology and onto these new ones. One is that gives them some legs, and the other thing is it provides airborne surveillance video that people have found to be extremely valuable. And so the programs are getting high priority.

When we try to look ahead, when we project 10% growth, we are applying the different views to each of these different portions of the business. And now what we are trying to say this time is that based on what's happened over the last quarter, we think we're doing a little -- we think that that view seems to be working so far. That's what I would say.

Does that help?

Yes, that is helpful, thank you. On ViaSat-1, you talked last quarter about the shift now from in the retail wholesale outlook in terms of the subscribers. Any change in your thinking there? And can you comment any further on, specifically, discussions with Dish and DirecTV and the wholesale channel on them? You indicated that you are very confident now, still confident in terms of the ramp, and it sounds like things are on track. Any update specifically on the wholesale-retail mix, and current conversations on the wholesale side in particular?

What we are looking at in terms of what we think the ramp will be, is we are trying to come up with assessments of what the demand will be, and how people will perceive the value of these plans compared to the plans we have out there, and what market segments they'll appeal to. And right now, as we are have been describing over the last few months, we're pretty optimistic that we will get good demand. When we talk about the wholesale-retail distribution mix, I put that in the unknowable category.

What we feel like is that to the extent that Dish and DirecTV are enthusiastic and come to market in a very timely way, we should have a very strong wholesale component. But, we want to be prepared to deal with it retail, so we have been gearing up to do that, even to the extent that they're not done with all the back-office integration or they don't have the enthusiasm that we thought, we just want to be prepared. All that said, I'd say, as the plans themselves have crystallized, and they've seen what we have to offer, it appears that their enthusiasm is going. We think, right now, things look good, but we just want to be prepared in either way.

Thank you very much.

Your next question comes from the line of Mike Crawford with B. Riley.

Thank you. First, regarding the Western plan, where you are talking about the ability to offer greater than the 3X or 4X speed increase at the same price point, because you've figured out how to partition or extract more capacity out of the network. What enabled this increase?

There's two parts to what we are doing. One part is this new network -- the second-generation Surfbeam -- our Surfbeam 2 is a lot more efficient than the older generation. So that will basically create more usable bits, so more bits per second per hertz of bandwidth. And it's a pretty meaningful increase compared to the first generation. So that manufactures more capacity for us than the Western beams.

The other effect that we are trying to achieve is really a packaging affect. It's how can we take the bits that we have and put them in a box and put a label on them that makes them more appealing to subscribers. So we've been doing a lot of modeling around that. We think we've come up with some approaches that should be quite a bit more appealing than the way we've packaged it before. Those are the two things that will let us do what I described in the Western beams.

Okay thank you. And then, all together with Iridium NEXT and the MEXSAT beam forming networks where you've got like $79 million in backlog. What is the timing of working that down and having it translate into revenue and cash flow?

So, those are fiscal 2012, 2013, and into 2014.

2 to 2.5 years.

Okay. And then, can you provide any update -- this is my final question -- the updated comments on the DOD's demand for bandwidth. You used to show this massive gap that things like wideband global constellation won't even come close to resolving. Just comments regarding that demand, what's available, and what you might be able to offer?

Yes. Basically, I'd say the underlying affect is absolutely true. We are seeing it -- the amount of bandwidth that the DOD needs, wants, and uses is only growing. I don't know if you saw, but when General Petraeus was being confirmed for his CIA position, they asked him about how he is going to reconcile his views on winding down the efforts in the Middle East, compared to what the administration wanted to do, and his comments were, and I'm paraphrasing a little -- No general in history ever gets all the resources and manpower and time that he thinks he needs. And then he added -- and nowadays the bandwidth. That really crystallizes the role of bandwidth in there. We don't see that abating.

I think what's happening, and I think this also is one of the things we have been anticipating, is that if you don't reduce the unit cost of bandwidth, and you just keep using more and more bandwidth, then obviously those costs are going to grow, and that's really becoming an issue in the current defense environment. So what that's doing is it's raising peoples sensitivity, not only to how do they get the bandwidth, but to the unit cost of bandwidth. All those things, we think, play into the themes we've been developing. I think those things are going to pass, and I think that's why we've had the success we've had in these mobile broadband applications.

I think the problem, Mike, is that it just takes a long time for those recognitions to find their ways into requirements and to the procurement process. It is a little bit frustrating on our side, but it takes more time than we thought. Or maybe more time than we would want it to.

As a matter of fact, what I would say is, you'll see an increasing divergence in perspective between users, people that are actually -- or organizations that are deployed in the Middle East and Africa, and planners, which would be more of the procurement people back in the Pentagon. The other thing I didn't mention that I guess we should is, besides the mobile broadband we also did a test with special forces of our portable broadband, which is a portable fixed terminal and we were able to do that over Eutelsats KA-SAT and got really good results there. So we think that some of the success that we've been having in the airborne broadband is going to migrate into the land portable as well.

Which is what we have been aiming for.

Okay and just an adjunct to that question, ViaSat-2, you have been holding some kind of bake-off to who might get the contract for that. Is there expected timing when you might make that decision?

We've been hoping for the end of the year. The main issue -- we are still working the intellectual property protection around that satellite. That's actually been the biggest issue for us to get through that with the satellite manufacturers. We think we've got a path there, so it could still go a little bit beyond December. But we think that the outcome will be worth it.

Thank you.

Thanks Mike.

Our next question comes from the line of Jim McIlree with Merriman.

Thank you. You talked a little bit about greater churn than you had expected and maybe less subscriber growth than you had expected also. Did that have a relation to your decision to do the increased speed on the Western beams? Or is that just two independent events?

No, we have had a plan to try to -- we've got our current plans in the areas that are covered by ViaSat-1, it was clear we were going to do new plans to take advantage of that. We've always been planning to improve the service in these Western beams that aren't covered by ViaSat-1. But the packaging of that service was the thing that was an issue. There, we feel like we've come up with an approach that seems to be really attractive, and we can come up with, as I described, a junior version of that in those Western beams. And given the satellite launch delay, there is no reason to delay rolling out those plans in the Western beams.

So we will do that around the time we thought we were going to do the ViaSat-1 plans anyway. And that will help with the issues that we are having with the older plans. But all that stuff was in some sense -- coincidental is not exactly that word, but as we were planning to do anyway.

Okay. And on the slide that was talking about commercial networks, it looks like in fiscal 2012 there is a fairly large increase in what you're calling projects? What is that?

Projects, the two biggest examples of that would be the MEXSAT, ground-based beam forming system and the Iridium NEXT. They're self-contained things like as opposed to markets.

Very good. That is helpful. Thank you very much.

Thanks Jim.

(Operator Instructions)

Let's just take one more.

Thank you sir. Our next question comes from Brian Ruttenbur with Morgan Keegan.

Thank you very much. The question I have is about future delays. What could go wrong at this point that would push things off more than a week or two on the next satellite launch?

Basically, we've hit pretty much the whole gamut of stuff. The only thing that's left, as I mentioned, there are 3 more proton launches, and hopefully those all go well. And of course whenever any satellite has an in orbit anomaly, if that satellite is -- or shares functions or designs with your satellite, then you want to go back and make sure that to the extent that it's reasonable that you don't want to double-check something on your own. That is all we are left with. That is always a risk in the space business. That is basically it.

So, if you ship in 3 weeks, the only thing with that would stop you from launching on time would be another satellite having some kind of anomaly that would stop you? Is that --

I don't want to think that somebody will invent some new failure mode, but the things that seems like the 2 risks that would be left are a proton launch anomaly on one of the next three launches, or an in orbit anomaly on some SSL satellite that shares things with ours. If there is a proton launch anomaly, of course proton is going to stop and figure with that issue is. If there is an SSL satellite in orbit anomaly we are going to want to think, and say, do we want to double-check something, or is there any additional risk to ours? Those are the 2 forms of risk that are left.

Thank you very much.

Thanks. We appreciate everybody's time and interest, and we will look forward to talking to you next quarter.

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