UPDATED at 1:46 pm EDT, Feb. 10
PARIS — Satellite broadband provider ViaSat Inc. on Feb. 9 said its WildBlue consumer service has posted virtually no increase in subscribers in the past year but made a substantial contribution to ViaSat’s profit.
WildBlue, whose current satellite capacity is fully booked in those regions of the United States with highest demand, has been stuck at about 415,000 subscribers since its purchase by ViaSat in December 2009, ViaSat said in a Feb. 9 filing with the U.S. Securities and Exchange Commission.
ViaSat has been counting on a spring launch of its large ViaSat-1 satellite, whose coverage has been tailored to train bandwidth on regions proved by WildBlue as having the most growth potential. ViaSat-1’s launch has been delayed by about three months, to late July, because of an accident during testing by manufacturer Space Systems/Loral.
In a Feb. 7 conference call with investors, ViaSat Chief Executive Mark Dankberg said the July launch will bring ViaSat-1 into commercial service in September. The delay will cost ViaSat up to $15 million in operating expenses that cannot be delayed, and were timed as a function of the earlier launch date. Satellite production costs associated with the delay will be borne by Loral, ViaSat has said. The entire ViaSat-1 project, including the satellite’s construction, launch, first year of insurance and deployment of initial gateway Earth stations, remains $400 million.
Dankberg said ViaSat had committed to ViaSat-1-related expenses, including Internet connectivity agreements and support contracts that take effect this spring. Company officials said these charges are between $12 million and $15 million per quarter and cannot be deferred while waiting for ViaSat-1 to launch.
WildBlue is the principal business in ViaSat’s Services division, which reported revenue of $175.5 million for the nine months ending Dec. 31, compared with $18.3 million a year earlier, before the WildBlue acquisition. WildBlue accounts for $152.1 million of that revenue, ViaSat said in the SEC filing. The division’s operating profit was 15.4 percent of revenue for the nine-month period, compared with an operating loss a year earlier.
Dankberg, who has told investors that ViaSat would refuse to cram as many subscribers as possible aboard the current WildBlue system for fear of giving customers poor service due to bandwidth constraints, said WildBlue has been a significant contributor to ViaSat revenue and gross profit.
The ViaSat-1 delay will be offset by stronger-than-expected orders from the U.S. Army for Blue Force Tracking 2 gear being developed by ViaSat, and for ground-based satellite beam-forming work to be done for Boeing Co.’s two-satellite network being built for the Mexican government.
During the conference call, ViaSat officials said they continue to plan for a ViaSat-2 satellite, with a contract to be awarded sometime this summer. Dankberg said the ViaSat-2 design will borrow heavily from what ViaSat has proposed to the Australian government for its National Broadband Network (NBN). NBN officials are reviewing bids to build two satellites to provide broadband to all Australian citizens.
Australian authorities are expected to select a contracting team for that network this summer. ViaSat is in competition with numerous companies, notably archrival Hughes Communications of Germantown, Md., for different pieces of the Australian project.
ViaSat Chief Financial Officer Ronald G. Wangerin said the winding down of the company’s spending on ViaSat-1 following the launch is likely to be accompanied by the startup of spending on ViaSat-2. Dankberg gave no indication of wanting to delay the start of ViaSat-2, which the company will need both as in-orbit backup for its WildBlue consumer broadband service and to meet what ViaSat sees as continued demand growth in the United States.
ViaSat’s largest customer is the U.S. government, whose business generated $281.3 million in revenue for company in the nine months ending Dec. 31, down 1.4 percent from the same period a year earlier. The government sector’s operating profit margin was 8 percent of revenue, down from 13 percent a year ago in part due to a one-time charge ViaSat took on an undisclosed government satellite program earlier in the year.
Dankberg said the rest of the company’s fiscal year, and especially fiscal 2012, should see a substantial pickup in government business profitability. He said the U.S. Army’s Blue Force Tracking 2 program, an indefinite-delivery, indefinite-quantity contract ViaSat won in mid-2010, has already generated $120 million in orders, including a $70 million order booked after the close of the third quarter.
More generally, Dankberg said airborne broadband applications for government agencies appear to be a promising near-term business, especially if, as the company expects, these customers begin migrating toward Ka-band satellite links. This migration, which industry officials have expected for some time, has been slowed by the fact that sufficient Ka-band hardware is not easily available, and will not be cost competitive until it is ordered in bulk.
ViaSat’s Commercial division, which includes airborne broadband for the business aviation and nascent commercial jet markets, beam-forming gear for mobile satellite systems and consumer broadband hardware, reported an operating loss of $7.7 million on revenue of $129 million for the nine months ending Dec. 31. Both figures were sharply down from a year earlier.
Dankberg told investors that better days are just around the corner for the commercial business. In addition to the arrival of ViaSat-1 this summer, the company is providing ground equipment to Eutelsat of Paris for that company’s Ka-Sat consumer broadband satellite, which was launched in December and scheduled to enter service in May. Orders under the Eutelsat contract should start climbing in the coming months.
Boeing’s Mexsat contract win was followed by a $40 million order to ViaSat to build a ground-based beam-forming system that will borrow heavily from work ViaSat did for Reston, Va.-based LightSquared’s satellite-terrestrial mobile broadband project. Mexico’s Mexsat and LightSquared both use L-band spectrum.
These commercial programs and sales of ViaSat’s conventional antennas should swing the commercial segment back into profitability within a year, Dankberg said. Taken together, ViaSat’s three divisions reported total revenue of $585.8 million, up 23 percent from a year earlier, mainly because of the WildBlue purchase. Operating profit, at $27.5 million, was up 9 percent over the previous year.
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